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But trezor claim that the labeling file is encrypted with a private key derived from the trezor device is this still safeshould i disable labeling and wipe my device to romove any threat ?
This labels are encrypted and stored only locally, so it's perfectly fine to use them if you want, and this is a great way to have better address management.Similar feature is also available in Electrum and other wallets, so this is not specific only to Trezor Suite, and everything is availble for checking because it's open source.
No keys are ever used for creating labels, and you can always disable and delete them.
The label feature in Trezor is encrypted and can be saved on several media (not only saved on the local file system), as shown in the following screenshot.
If I'm not mistaken, in older versions of Electrum, when I activated the Labeling feature in Trezor Suite, Trezor couldn't be used in Electrum.