I'm of two minds on the Illyria plotline.
On one hand, its fits in nicely with the theme of the continual costs AI is dealing with as part of the Wolfram and Hart deal. A metaphorical corruption with Gunn paralleled by a literal one with Fred, all while Angel having to accept the constant compromises as part of his growing discomfort of his decision. Amy Acker would go on to kill it in the role, and
On the other hand... we're losing a character that still feels like she has loads of elements to explore about her and largely in the tragic, yet less interesting dynamic of being an innocent bystander, not unlike Tara on Buffy. There's potential for great drama in her falling into becoming Illyria, but the inherent problem is that the episode seems emphasized towards the effect on all the characters around her. Wesley's heartbreak, Lorne's anger, Gunn's guilt, Angel & Spike's helplessness. Its all great character stuff, but in an episode about Fred's death, she feels the least explored. '
Its not made much better after a similar element happened with the Cordelia the previous season where her character is (You're Welcome notwithstanding) essentially wiped out in favor of her body being corrupted by another being, and the affect it has on Connor, Angel, etc. Cordy and Fred were richly drawn people with nuanced layers, and it feels unfortunate that their possession/demises feel more about facilitating a showcase of angst and pain of the (largely male) characters around them than the thematic destination of their particular journeys.