The answer the rabbit man managed to stutter out sounded much more like an excuse than a reason. While Navi could understand his distrust of Midna his methods were much less honorable than she was.

After Midna had rebuffed the rabbit for his rudeness she gave Navi a parting farewell which Navi decided to take. The Twilight Princess clearly needed to be alone with her thoughts right now and Navi had nothing to gain by remaining, besides Midna's parting remarks were almost friendly. 

As she left Navi did not loosen her hold on the rabbit's robes. Once they were outside she then let go and pushed him roughly into the outside wall of the inn. "Among my people eaves dropping is a crime punishable by execution. I do not have that authority here but do remember that if I ever catch you spying on me or my friends again I won't hesitate to drop you into the Crater of Death Mountain."

There Navi left the rabbit man hopefully with enough fear struck into him that she'd never see him or his offending garments again. She still have his boomerang in her other hand, oops. She might as well give it to Link when she met up with him.

The rabbit man weighed on her mind though. Did he seriously think people were that stupid, that they started to confess there innermost secrets the moment they thought they were alone. Of course not. A better way to judge someone's motives was to look at what they got out of it. Midna needed the Princess to be on her throne for her plans on the kingdom to take effect. Therefore at least till Zelda was safe Midna was trustworthy.

Navi returned to her room at the Red Dragon and slept. It had been a very long day. The next morning or perhaps Navi should have called it late that night, fairies needed very little rest so Navi had only slept three or four hours. She spent the next few hours till morning concocting plans and each and every route they took seemed to lead to the same conclusion. If Link was to be successful then he must seek the advice of Oberon and Titania the Lord and Lady of the Fairy Realm. That meant that for the first time in centuries Navi was going home. She prayed it would not be the last place she saw.

When the sun rose Navi returned to the Town Square if Link had to exit the castle he would pass threw here. Soon enough he came riding tall atop Epona he truly looked like the Hero of legend. It was quite a sight to be seen. People left space in front of him so that Link might move forward without interruption but on all other sides people glamoured to get a view of the Hero. Girls blew kisses at him, children waved, a couple of older women threw roses.

It was best they get out of this throng before discussing any plans. Therefore Navi walked up to Link's horse, taking Epona by the reins so that while Navi led the horse out of the city Link would be free to wave at his adoring fans. When they were just about to the gate, true to her word Midna appeared giving Link an early morning greeting.