He whines that Rachel has crushed all of his ideals, and let's pause for a moment to consider for a moment the possible future parallel of Rachel and Elle, a dream girl fantasy who turns out not to be innocent just like May, okay, and what that does for a man's psychosexual development. The disappointment of the ho-bag is a hugely important step, because it breaks you out of your romantic mommy fantasies about how there's a girl who can fix everything for you by mirroring back you, just as you are, without any of the real growth or change that actual love demands. Having a blank boring girlfriend is the best possible case for a boy, but not a man.
So usually you have to have a Rachel or an Elle come into your life and act unpredictable and break you open before you can possibly understand that women are people capable of making independent and rational moral decisions; that just because when you look at them all you see is a big old mess of your own emotional bullshit doesn't mean that all they are is emotional bullshit: it's actually been you the whole time. Which is what Dan went through with Serena eighty times, and it's pretty much Newland's entire deal in the novel, and what Chuck's going through right this second. We see its effects on Chuck here, but I am willing to bet we'll see a compensatory growth in Dan, too. For now, though, he's content to be just awesome enough to grab the pissy Blair: "Hey, Blair. It's Rachel who's been messing with you. And we had sex in the costume closet, so you can do whatever you want with that."
B's like whoa and puts on her game face, and then heads over to Rachel out. Rachel is still looking like she's going to barf because of all the true stuff Dan just laid on her, and Blair's like, "Fight back!" Rachel won't, because she can't deny it. She is a gross, gross lady who managed to take the thing she loved most in Dan and in herself -- that innocence and belief -- and twist them all up in ugliness and weakness. She's done too. Blair's taken aback by all this, and she's like, "Okay, gotcha. But I'm never going to Yale, so you have to bleed exactly that much even though it won't be that fun." Rachel starts to cry: "I don't know what's happened to me, I don't know what I've become. I'm... So sorry." It's so for real that it punches Blair in the face, and becomes a mirror. She actually, physically swallows it.
It's that last Jenga piece: vengeance, gone. No fun. Won't help. Just feels worse. You can't break a woman that's been broken like Rachel, and you can't destroy anything as thoroughly as Blair wants to destroy Rachel without coming to understand it enough that it's indivisible from something akin to love. "Well, your punishment is... Just... Live with it. I should know," Blair says. "It's not easy." For a second they see the other in each other and for a second their nasty, impure closeness becomes something sweet, and bitter, and then B takes off, because fuck that.