Yes, this has really bugged me, he seems to have lost his maturity and compassion and been turned into some sort of buffoon, very disappointing...why has his character changed so drastically? I think you are right, it is to justify Lol's story. Even so, it still doesn't explain why Lol all of a sudden is going on about Milky being 'the prince he always was', there was no hint of that in the film, Lol and Woody seemed to be solid and the 'adults' of the gang.
She seemed to jump into bed too quick with Milky and I don't think either of them would do that without some serious guilt and agony being involved, it was just too 'wham bam'. It doesn't seem considered at all.
I'd like to see Combo come back, the best character (even tho he was a vile NF thug) and an absolutely blinding performance in the film. You could see that hurt, screwed up inner kid project all his pain and violence all over the place, he was fantastic to watch.