I'm going to have to go with Funhouse as well. Every single episode of the sixteen was excellent, and while I probably would have sent a different two episodes to the finals, I don't mind seeing these two come this far at all. Every single episode chosen at the begininng of this poll is fantastic, including (and especially) these two.
Funhouse is so memorable to me as the first episode to feature the extended dream sequence. I remember the first time watching this incredibly imaginative and surreal episode as a very fun affair. I still crack up when Silvio glides - not walks - into Tony's dream, and Tony smiles gleefully as Silvio barks "Our true enemy ...Has yet ...To reveal himself". And I've always loved Tony's little dream in the car, the ideal family dinner ending in applause. Hilarious!
Like DH said, though, you pretty much know from an early point what Tony's dreams will reveal to him, and what's going to happen after that. And while the first half of the episode is a fun little trip, the destination is anything but fun. Pussy was arguably the biggest character to be killed up to that point, certainly the murder that had the biggest effect on Tony. And after making Pussy's character such a sympathetic, tragic figure following his emotional breakdown in D-Girl, his death scene was made even more emotional and dreadful.
And to agree with garth, "the closing montage says just about everything one needs to know about the series, the characters, the victims---everything". And the use of the Stone's "Thru and Thru" over that montage is one of my favorite musical moments of the series.
So that's that. Let's do it again, DH, with sixteen more sweet episodes!