The "action" movie Angel, Connor, Fred, and Gunn see at the Drive-In is actually Courage Under Fire (1996).
This is the last appearance of the Groosalug in the series although he returns in the comics. It was rumoured that he would have a cameo in season 5 as one of the male models in Harmony's 'Musclely hunks' calender but it never came to fruition.
At the end of this episode the demon (Cordelia) rises up to heaven whilst the Angel sinks down into the darkness.