
Deliberate mistake: The mouth on the panda costume is in a constant smile and at no point does Homer change it, even when he is in pain. However, when he is being pulled back under the curtain the mouth is open and the mask has a frightened expression. I suppose this was done on purpose, but it's still a continuity error of sorts.
Answer: Willy referred to an encounter he believed he had with actual aliens, while Wiggum thought he was referring to the arcade game.