Lisa's Pony - S3-E8
Other mistake: When Lisa rings Homer to tell him that she loves him, the shot of her talking is re-used from "Bart's Dog Gets an F." We can tell this because her cheeks inexplicably appear puffed up (in "Bart's Dog Gets an F" she had mumps).
Answer: Willy referred to an encounter he believed he had with actual aliens, while Wiggum thought he was referring to the arcade game.