I never liked the Kate storyline. I thought in the first half of the season, it dragged those episodes to a halt in a cheap attempt to create a Burn Notice-like story arc. What really bothers me is the sheer absurdity of whatever "plan" is in place. It feels like the writers didn't map anything out, and made it up week to week.
Let's see: we know (or are lead to suspect) that somebody wants this music box for unknown reasons, and they think Neal has it. It might be Kate, or it might be someone else connected to the FBI. So to get to Neal, they go through Kate and use her as, essentially, a hostage. But they don't just take her; they give her plenty of notice, so much so that she visits Neal in prison to say goodbye. She moves out of her place. And she's on a long-enough leash that she can call Neal, meet with Peter, and leave Neal random hidden notes. Mind you, this was all, what, four months before Neal is supposed to be released from prison? It's highly unlikely that any well-conceived plan would anticipate Neal being able (or even willing) to break out of a maximum security prison, and then follow cryptic clues and go on treasure hunts while the FBI presumably hunted down the escaped felon. Neal proposed the unorthodox arrangement with Peter and the FBI; nobody in the FBI (if they're the ringleaders) could have predicted or instigated Neal's release.
Basically, Kate's either a hostage or a ringleader posing as a hostage. A hostage shouldn't be free to leave cryptic clues and messages in morse code. And she wouldn't need to be taken hostage while Neal has four months left on his sentence. The most logical course of action is to grab Kate a few days before he's let out, and leave a note saying "the music box for Kate." Everything else is a Rube Goldberg machine to get to that point, and relies on a lot of near-unthinkable things to happen for them to work.
The "twists" serve no benefit other than to stretch a 2-part episode into a whole season. I actually think the last month or so was pretty good if taken by itself. The the set-up to the first half+ of the season is beyond absurd. Am I alone here?