I loved Kate. I loved the whole "real world" feel of S1, and a lot of that was down to her realistic reaction to finding out about Angel. True, she did seem to be prevailant in the worse episodes of the season, but I really don't think that had anything to do with her character. It was a shame she left - something like S4 could have really benefited from her outside, entirely human influence.
Although, if she'd made it to S4 - knowing Joss - there's no way she'd have remained entirely human. The gals never do.