Continuity mistake: When Willow is outside the jail just before she starts pulling bricks out, there are two policemen walking past the open door, but a split-second later as the shot moves out to look up at the window, they disappear.
Continuity mistake: Where Willow is pulling the bricks out of the jail near the beginning of the episode. When she first pulls the bricks out of the arch thing they are from a different area than when you see the arch from the inside of the jail, even allowing it to be 'inside out' (as seen from outside and then the inside).
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.