Even in the first and second seasons of King of the Hill, Dale was a little off kilter and I think we all wondered what would finally nudge him into full-blown a paranoid psychosis - maybe Nancy's affair and Joseph's true heritage, or the Mega-Lo Mart running out of Manitoba Cigarettes?
However, Dale's break-down being caused by Hank, Bill and Boomhauer was a shock, and possibly one of the reasons this episode is so great - Dale is so close to the edge of insanity, his friends don't realize until it's too late that he lost it. Afterall, their practical joke was fairly mild - stealing his new lawner mower he'd been bragging about and send a couple of ransom note and pictures. Well, apparently they know Dale too well, because they hit on all his big conspiracies, including JFK's assasination and probing aliens.
After Peggy gets involved and apparently takes a photoshopped ransom picture a little too far, Dale begins staying up all night, thinking and plotting against the various people he believes are behind the theft of his mower. Nancy's somewhat mild concern is hilarious: When Hank finally comes clean, she chides him for a moment, then laughs it off - "I don't know why you'd want to do this to him - Dale's pretty easy to fool, especially when you're his friend. But whatever makes you happy, that's what I always say!"