Holtz encourages Connor to get to know Angel. It's clear he's plotting something. I liked the scenes of them fighting together to save Justine, the only way they are able to bond. But I still cannot figure out if Holtz loves or hates Connor. Sending Connor against his will to spend time with Angel seems to be punishing the boy, and I didn't really think Holtz would do that if he loved Connor as a son. But he wants to punish Angel some more, so maybe Connor is just the weapon. When Holtz tells Angel that Connor should stay with him and gives him the letter, I thought I had it figured out, that Holtz cared more for Connor to be happy with his real father than he cared about making Angel suffer more. Wrong! Holtz's plan was brilliant, to have Justine kill him so that it would like like Angel did it. There is no way that Angel can prove he did not. And the letter that Holtz left was just ambiguous enough to make Angel seem either good or evil.
It's interesting that Holtz never tries to directly fight Angel either before or after he takes Connor. He knows he is no match physically for Angel and chooses instead to use more subtle means of psychological torture as revenge on him, rather than physical violence. Even his use of the little army was done with the aim of taking Connor and not for killing Angel. When he does want to use violence, he uses Connor as the weapon.
On the Groo/Cordy angle, I am feeling sorry for Groo. It's clear that Cordelia believes her role is to support Angel in any way and given the major issues he is dealing with, Groo is barely even an afterthought to her.