There are various reasons why this episode was a real success - learning more about Larry's paranoia when he confronts Edward about cheating, and then having it turn out that Larry is a complete moron was just really funny.
I love how Dharma acted like she wasn't bothered by Greg's ex-girlfriend only to end up bursting a little bit because of it, then going out of her way to find a boyfriend for her.
Also, the stuff with Kitty and the cream was funny as well. Pete was there briefly, but he had a funny line, as always. All in all, a very great episode.