Continuity mistake: When Homer shows his "incriminating photos," you can see that in them, he is bald. We know from several previous episodes that Homer had hair when Bart was a baby. He even has a bit of hair when Lisa is born.
Continuity mistake: When Tony Hawk and Homer compete against each other on the skateboards, Bart is on Tony's starting side. When Homer knocks Hawk off his skateboard, Bart is now on the side that Homer started on.
Answer: Willy referred to an encounter he believed he had with actual aliens, while Wiggum thought he was referring to the arcade game.