The One With Ross's Wedding, part 1 - S4-E23
Other mistake: When Phoebe tells Rachel that she thinks she can help her get over Ross, she starts by saying that she needs some photos of Ross. Rachel immediately starts walking towards the kitchen, walking right past the red box of photos on the table beside Phoebe (which she will pick up on her way back and then hand to Phoebe), before Phoebe even mentions the chocolate (and then glass of water) she also needs. It's obvious that Rachel is headed for the kitchen before she knows she needs to go there. (00:12:00)
Answer: Usually by the seventh night of Hanukkah you don't know what to get the other person, and you will probably resort to getting the other person something insignificant. Chandler is basically saying that the pen is a stupid gift.