sigmund,
Now that is a great question!
It depends, is the answer.
I feel the "dig it out" vs. "cement it and leave it" is a complicated question based on a lot of factors; economic, design requirements, personal preference...ect.
Ask yourself these questions (there are others): do you desire to totally eliminate the pipe? Does your pond need a drain - if so what design do you prefer? Do you have a spillway? How much you are willing to spend? All of these are questions you need to think through. In short you can successfully plug it or remove it - the choice is up to you.
I do not have experience with bentonite.
My personal opinion (this plus 50 cents will get you a newspaper): If the pipe has one bad spot in it - it may have others. I believe in fixing things once, so I would dig it up and replace it or totally remove it and go with a different design...just my opinion. There are plenty of folks on this board who have drain pipes and do not have issues.
I took this route with my leaky stand pipe. I removed it and replaced it with a spillway and siphon system. If I had to do it all again I would remove all pipes and simply use the spillway. I do not have a need to drain my lake on a regular basis.
Gator