Continuity mistake: Spike tells Buffy about drugs The Initiative would give him when his chip started firing after he was first captured. This is wrong in two ways: firstly, we saw most of Spike's time in captivity, and he escaped before they could drug him, and secondly, he didn't even know he had a chip until he escaped and tried to kill Willow.
Continuity mistake: When Willow is out with Kennedy, Willow tells her that she doesn't get why she likes her. As she says "I still don't get it", she pulls her hair back over her left ear. Then when she says "Why you like me" in the following shot, her hair is hanging back down over her left ear again.
Chosen answer: Angel is saying that he is still jealous and Buffy recognizes that this is his way of saying he wishes that they could be together. That is why they both smile.