It's kind of a strange episode, no question, but I don't think it was "bad". To be honest I'm not sure if there are actually any episodes in Buffy or Angel that I didn't enjoy even a little bit (I'd have to mull that over for a while), but my big issue with this one echoes what you said: for the most part, it's just filler.
They were developing the story of Angel losing faith in the mission, and the entire purpose of this episode was just to further that. It's a similar deal to the episode a bit later, "Why we fight". Not bad, but there's just no real point to them other than one specific thing. And when you consider that the messages of both of those episodes (I liked "Why we fight" better") are pretty philosophical and abstract, well, that qualifies as a bit of filler in my books.