Other mistake: The doctor in the insane asylum shows a video that shows a child Ned Flanders from 30 years ago. Ned is 60.
Continuity mistake: Ned's clothes are cut and torn in the huricane, but the next day, they are somehow clean and intact. He can't have gone home and changed, otherwise he would have seen everyone repairing his house.
Continuity mistake: When Ned stops to snap at Lisa he's already yelled at Marge and Bart. Yet in the background you can see Marge among the secondary characters.
Answer: Willy referred to an encounter he believed he had with actual aliens, while Wiggum thought he was referring to the arcade game.