[Dormamu]

The point of this episode is that A: Dan is just a total whackadoo with a God Complex who will off even those he's supposed to be on the same side with. Which is why Parado is genuinely disturbed. We'll call this the pivotal moment.
Also, notice that Dan states "Don't lump Gashats and Bugster together." He sees the creation of the game world (Chronicle) as his being a God over all reality. Bugsters are just a method for him to create data for this world, a necessary virus to create a non-virused world. And because apparently killing off a video game character is way more important than killing off an actual human.

B: To give us a new way to get gashats through Genm's predecessor. Otherwise how else are they going to get past Dangerous Zombie.

C: To give us more Emu has Game Syndrome issues.

Overall, I'd say this episode tickled my pickle.

Anyone notice how since Parado's Perfect Puzzle has shown up, all the boxes and icons are now gone and replaced with tokens, both in digital and mostly giant foam backdrop pieces?