Smile Time - S5-E14
Character mistake: While Gunn and Lorne are interrogating Framkin he sings a couple bars of a song "Courage and Pluck". However, though he has the ability to read people when they sing, and in fact in the very next episode knows that Fred is about to fall from just the words "you make me happy", Lorne doesn't read him.
Answer: Everybody including Angel saw her. After helping them and then being left alone to talk to Angel, Cordelia says that the Powers That Be let her come back one more time to help them. After Angel gets a call saying that she died, he realises that it was her spirit that was helping them the entire time.