Continuity mistake: When Veruca comes to Oz's cage to spend the night there, she tosses her jacket onto the round stone thingie (knob?) at the end of the stairs, and it covers the whole thing. However, when Willow discovers them in the morning and Veruca goes to pick up her jacket, you can see that it has moved. Willow didn't touch it when she entered, and both Oz and Veruca were locked up so they couldn't get anywhere near it. (00:26:35 - 00:29:20)
Continuity mistake: When Oz leaves and holds Willow close to him, the position of their noses changes depending on the camera angle. In the shots of OZ they're pressed together and in the shots of Willow they're not.
Continuity mistake: When we see Veruca eating at the table, she reaches for a cup as we see Oz coming up behind her. The shot changes and we see her turning around and reaching for the same cup again, though she never had time to put it down.
Chosen answer: Angel is saying that he is still jealous and Buffy recognizes that this is his way of saying he wishes that they could be together. That is why they both smile.