Does the text suggest that Baba knew what was in Damu Anna's letter before it was read to him?

Yes, the narrative in Chapter 25 strongly implies that Sai Baba knew the letter's contents before it was read. When Shama presented the letter, Baba immediately commented on Damu Anna's ambition, stating he was "trying to touch the sky!" Shama himself was astonished, noting that Baba's words were the "exact meaning of the letter." Baba then playfully deflected, saying, "Arre Shama, read it, read it! Why do you think my words are the truth? I am just as I am." This exchange showcases Baba's divine insight into the thoughts of his devotees, even from a distance, while also highlighting his characteristic humility.