The Harsh Light Of Day - S4-E3
Other mistake: We've seen before that vampires are fine as long as they aren't in direct sunlight, yet in this episode Spike is in the shade when Buffy removes the ring and he still starts fizzling.
Other mistake: Just after Giles becomes completely blind, Spike gets up to get a book off of the mantle. When he does this you can, very briefly, see James Marsters reflected in the glass doors of the bookcase that was behind him, despite Spike being a vampire. (00:27:00)
Other mistake: In the scene where Spike escapes from a blind Giles, he pushes Giles out of the way and does not get a shock to the head from the chip in his head, which normally goes off with the most minor hint of violence.
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.