Obviously there is much more the story. But, if you have a hard worker that is accomplishing all you need him to do and is dependable you want him in the company – and leading by example.

If he wasn't getting it done or had an attitude.... then no. If you feel he was just skimming by, then no. If he doesn't appear to be a leader or has shown that he can't manage, then no.

Did everyone (including this employee) know that there was a manager opening? If not, why not let him know?

I hired 'worker bees' and some have turned into good leaders. I started as peon and ended up ruling the place (directing other designers, presenting to the biggest clients and even having a say in who was hired). I did innately push to make my company better.... and it caused some of the owners to get mad because my vision and their vision wasn't always the same (several talks with the owner over HR). Ultimately, I left and started my own thing.... but they got 5 great years. There are some people that are satisfied and good at being worker bees. If that was him, then so be it. But, he could also be making unwanted waves because his vision is different than yours.