I recently had an internal interview as part of a restructuring process. One of the panel was the direct line manager of one of the other candidates. Is this a conflict of interest, as it appears they have an unfair advantage?
"Is this a conflict of interest [...]"
Unfortunately the answer is "Technically yes, but remember that it may cut either way, or may have no effect at all." That manager doesn't necessarily think their direct report is the right person for the job. And presumably whoever set this up was aware of the possibility and trusts that the panelist will judge fairly.
Odds are that this panel was going to include the manager of at least one of the candidates, simply because those are the people available and qualified to serve on the panel. Perfect impartiality is a myth, but most managers should be able to recognize that they are biased and allow for it. Indeed, the manager may have recused himself/herself from voting on that candidate; you don't know (and have no particular need to know).
In other words, (a) don't worry about it until and unless you have DIRECT EVIDENCE that the candidate got an unreasonable amount of attention, and (b) worrying about it isn't going to do you any good, and is just going to get in the way of doing your job.
It was probably harmless... and remember that since there's a panel, that one manager's opinion doesn't drive the result even if they DO want to push it in a particular direction.
Let it go.