Plot hole: In Ben's nightmare, Gwen says, "We will come and get you!" and then she nags at Ben for being the one with the alien powers, and she does not join him in climbing the tree. My guess is that this was due to a script error; it was likely supposed to be "he" (i.e. Ben) instead of "we".
Factual error: When Ghostfreak first escapes the omnitrix, right before he rips off his outer layer of skin, he still has the omnitrix logo on him even though it should be gone with him being outside the watch.
Continuity mistake: When Ben, Gwen and Max try to track down Ghostfreak, Max's scanner picks up "trace spectral activity from around that corner", which happens to be right ahead, but then Ghostfreak and cohorts appear from behind. In a deleted scene featured on the series' DVD, the source of the reading is revealed to be the tuba player Ghostfreak had possessed, who instantly runs off at the sight of Fourarms.
Other mistake: In Ben's dream, Wildmutt's brace is the same color as his body while Ghostfreak grabs him.