Ah, the first of Daniel's many, many funerals and memorial services. This episode mostly seems to serve as a way for the team to develop stronger feelings for Daniel by being brainwashed into thinking he's dead. It also serves to remind us that Daniel's a scholar more than he is a soldier, by having him translate from cuneiform and remember historical accounts for Nem, an Oannes (the species is named for a mythological Babylonian figure).
The Oannes are clearly an advanced race (although the only one we ever see is Nem), and Nem says that "perhaps, in time" they could become allies of Earth, but we never see or hear of them again. There is, of course, a problem from a writing standpoint of introducing too many powerful allies, in that especially this close to the start of the show it would make for a very short defeat of the enemy and thus a very short series. However, I think it wouldn't have been too hard to make a similar episode with slightly less advanced aliens. But, what's done is done, and now we'll never hear from the Oannes again.
The team do not handle what they think is Daniel's death well. All three have flashbacks (a flaw with the memory-changing device, it would seem) and Jack even goes so far as to smash the window of general Hammond's car out of frustration. Even so, he manages to sneak in a bit of light-heartedness on learning whose car it was, telling the general "You ought to get that window fixed...". There's an odd (to me) moment after Carter's hypotic session, where she and Jack embrace in a somewhat too-friendly way, which seems out of character for them as USAF officers - the show was always very strict about not letting the two of them do anything the real Air Force wouldn't let them. Speaking of the real air force, they do appear in this episode - that's a genuine colour guard at Daniel's memorial service.