She sits back (in a great military jacket, incidentally) and relaxes a little. She thinks they have a lot in common because that's the sort of thing that a Moriarty is supposed to say to a Sherlock Holmes. She says, "I see everything you do. I feel it. Makes the world quite dull, no?" Holmes says, "So you're saying we're the same." She corrects him: "I'm saying I'm better." Ha! So, she says, that's why she let him live. He wasn't the threat he was made out to be. And then he "disappeared into a syringe" when she vanished. So when she heard of his miraculous recovery, she was curious about it. Holmes says that's bollocks. He thinks he must be close to interfering with one of her plots, which would explain why she wanted him to leave the country with her. She says that where he sees puzzles, she sees games -- and he's a game she'll win every time. But she'd never kill him: "Not in a million years. You may not be as unique as you thought, darling, but you're still a work of art. I appreciate art." So instead, she'll hurt him. Worse than she did before. She warns him, "I have reserves of creativity I haven't even begun to tap." So she recommends letting her win. Then she walks away. Holmes falls over.
Watson comes home. Holmes says he has a lot to tell her. They start with her taking the bullet out of his shoulder, since what's the point of having a surgeon in the house if you're not going to have her do stuff like this? She says his muscle is all shredded, and he should take something for the pain. They argue about it, and she says there are non-addictive painkillers. Holmes asks how good they could be if they're non-addictive, plus, he'll need all of his faculties for the coming challenge. He says he found the truth about Irene quite liberating. He's wanted the truth for some time and now he has perfect clarity. Oh, lord.
Watson tapes him up and sums up the situation from the first hour of the episode, complete with the dead third-floor assassin. "Where would you like to start?"
They start at the morgue, given that you want to drop off your corpses promptly, or the police get annoyed. Gregson is having trouble dealing with all this, although he has a handle on the facts. He'll have his people look for Irene Adler, or Moriarty, although they all know she's probably not using any of those names. Holmes warns that the only crime they can definitely pin on her right now is shooting Isaac, who was about to kill Holmes. Watson says all they know about her activities is the Taggart Speakeasy job. Holmes says that Moriarty took Isaac's phone and wallet, so they can't investigate that. Then he spots another phone in a baggie, which was brought in last night. It was one of these random shooting victims. He had Cyrillic tattoos, so the police think it's gang-related.