I just re-watched that episode last night, and it was a heart-wrenching scene for sure. The way she dies, and the way Wes is just devolving before Ilyria emerges is so powerful.
I actually found the next episode, "Shells", to be a bit sadder. The entire time during "Hole in the world" I was expecting Angel to save Fred. I mean, it's Angel; he always saves the day. Only this time he didn't. Even after Ilyria arrives at the end of the episode, there was still a part of me expecting her to be okay. In the next one though, when they try so many different ways to bring Fred back, and they just can't do it, when you find out that she really is gone...that was heart-breaking.