Continuity mistake: When Oz turns back into a werewolf, he chases after Tera. She hits him with a chair and he falls to the ground and passes out. We then see The Initiative show up and learn that Riley has shot Oz with a dart (it's sticking out of Oz's side). But two shots earlier the dart wasn't there.
Continuity mistake: When Oz shows up at Buffy and Willow's dormitory, Willow has a lump or a pimple above the left corner of her mouth. It disappears later in the episode when she's talking to Buffy about her feelings for Tara and it returns at the end when she and Oz are in his van.
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.