This is, I think, the moment where she falls in love with him. She's totally falling in love with him right now, as far as I can tell.
They almost kiss, which is hard to manage when you're trying not to totally barf on each other about how queer you're both being, but Carol's outside smashing tables or something, and then at the same time Blair is at Prom yelling at Chuck, having found him with all the Nelly Yuki ballot-stuffers, and of course assuming that he is sabotaging her chance at Queen, which means he also did all the one hundred other things, which she again lists -- "my missing corsage, my dress, the limo and hotel!" -- but back in the past Keith says he wants sex from Carol for the tape, because that's how they rolled in the '80s, it was like a secondary currency as I understand it, and Lily says that's totally gross, and of course Carol already boned him, and then Carol explains the whole sordid story to Lily again, and Lily walks over to her future husband and babydaddy and says that nobody speaks to them that way, but doesn't really follow this up with anything else, because she is tedious.
"Okay, we already called the cops, so... You guys are trespassing." Owen gets scared I think about the cops and drags them away, but the disgusting-ass girlfriend is like, "Finally. Take the trash back to the Valley!" and they both scoff at her, and I still can't figure out where Carol picked up her Faith-esque inflections, but it's obnoxious and dumb, and Carol talks about fighting the girlfriend, and Shep wanders into the scene and punches Keith, and then it's just fighting, fighting, fighting forever. Owen gets into it, Carol beats it out to her car, and Lily for some reason jumps on Keith van der Woodsen and hits him with her purse a few times.
While Blair shrieks at Chuck about his betrayal most foul, Penelope -- horrified, and that sadsack tragic girl you see sometimes gives her a little attitude about the ballots -- announces her as Prom Queen, and she goes, "This is my moment. I own Prom," into Chuck's face, and forces Penelope to put the crown on her head with her own hands, and Dan is like, "Who would vote for Blair?" because he's never seen a TV show before, and Chuck explains that he did it, and was removing the Nelly Yuki ballots, and did all the sabotage, and then gives Serena the key to the penthouse at the Plaza. It's a long brass key on a ribbon like the pool at Constance. "You didn't think you were the only one who knew about the scrapbook, did you?" There is NOBODY ON THIS PLANET THAT DIDN'T KNOW ABOUT THE SCRAPBOOK! SHUT UP ABOUT THE SCRAPBOOK! STOP TRYING TO MAKE THE SCRAPBOOK HAPPEN, SHOW! IT'S NOT GOING TO HAPPEN!