Continuity mistake: We see Xander lying in bed with his chest and stomach uncovered. But when Anya comes in and starts talking to him about checking in at the unemployment office, his bed sheets are suddenly pulled up covering his chest and stomach.
Plot hole: Willow hacks into The Initiative's computer system and discovers air ducts and electrical conduits leading to Adam behind 314, but the room doesn't show up on the schematic. It seems unlikely that nobody who didn't know about Adam would have noticed this and investigated.
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.