Following Brandon's arrest, sparks fly between him and Kelly over his ongoing refusal to reveal the name of his source, until Erica proposes a way to help him entrap Riggs in a sting operation. Meanwhile, Valerie seeks to learn who anonymously helped David pay off his loan shark, and learns the truth about Noah and his wealthy background. At the same time, David's jealousy and pride get the worst out of him after he rejects help from Donna after a fire breaks out at After Dark. Steve & Jodi, then Steve & Rush, talk about paternity and if he is ready for fatherhood; Steve goes to Carly for comfort. Kelly volunteers for a new job at the free clinic and meets the volunteer doctor Monahan. Noah starts dating Donna after telling her about his wealthy family.

In the week before Christmas, an administrator asks Kelly to give a speech praising Dr. Monahan, which leaves her in a dilemma, knowing his true nature. Meanwhile, Donna reacts to Noah's lack of Christmas spirit due to his history. Carly's son, Zack, questions the existence of Santa Claus, and Steve sets out to prove that he's real, with a little help from Nat. At David's urging, a depressed Ben delivers gifts to his parents, and later he and Valerie help out a suicidal Ben. Emma refuses to back off from flirting with Brandon, and gives him a valuable watch as a Christmas present; he finally gives into her charms and has sex with her.

David tries to makes amends to musical artist Jamie Blake after his first music review gets her fired from her job, by trying to get her to perform at the After Dark. Meanwhile, the greedy Valerie ignores Noah's decree to halt the betting at the After Dark, with serious consequences when they both get arrested after the police raid the place. Steve suffers after he and Brandon try to assess Kelly's potential reaction if Brandon tells the truth about his fling with Emma after she threatens to reveal it with an audio tape, and Kelly mistakenly thinks Steve is the one having an affair with Emma when she overhears Brandon and Steve talking about it. Also, Carly thinks Steve is irresponsible with Zack, which takes a turn when she herself loses Zack during an outing at a mall with Donna.