When SpongeBob wakes up from his dream, the sign reading "Open" has disappeared.
SpongeBob blows a bubble in order to catch Wormy. But since he is wearing a water helmet, how could he possibly be able to blow bubbles when the bubble wand is outside of his helmet?
The worm spins a cocoon and changes into a butterfly, but in real life it's a caterpillar that does that.
Throughout the whole episode they call Sandy's caterpillar Wormy. Though worms do not turn into butterflies, it is simply a name given by Sandy and doesn't necessarily mean anything.
When SpongeBob and Sandy are being carried, SpongeBob appears to be floating and Sandy's right arm is missing. Also, in that same scene, Patrick's eyes are missing.
After Wormy's metamorphosis into a butterfly, every now and then, they show a close-up of a real insect through a character's POV. The closeup is what made the characters afraid of the butterfly. The live action footage does not actually portray a closeup of a butterfly, it portrays a closeup of a horsefly. Horseflies are generally scarier and even more harmful than butterflies.