This is the episode where Spaced really got into its stride, as least as far as I'm concerned. We've been introduced to all the characters, the situation has been fully set up, now it's time to develop the characters and their stories.
Art (as the name suggests) fleshes out Brian's character - his pretensions and his insecurities. It's when Brian stops being the wierdo from downstairs and becomes a fully fledged character in his own right. As I mentioned here, I think the interaction between Brian and Tim during this episode produces some of the best lines in the series.
Daisy's search for a job and interview at Flaps magazine seems like a sub-plot to me, although it does produce some excellent comedy - particulary the Magic Roundabout music, Girl Power!, and - lest we forget - huge fat cocks.
Vulva was the first role I ever saw David Walliams play. Looking back, it seems like a unique creation: even in Little Britain, he's never come up with anything so grotesque or distinctive. I'm tempted to say it is his finest hour yet.