It's understandable that he could fight vampires and such since they aren't alive, but yeah, I did wonder why he could fight and kill demons that are intrinsically alive. I wonder if the chip is more tied to how Spike's brain processes information. Like, if he thinks of what he's killing as a living person or not. Maybe it's not the "deep molecular suntan" that made Spike able to fight Buffy after her death but that he thought of her as dead but walking like him. Of course, the government really could have sensors that detect living human flesh that could work through the bouncy castle of radio anomalies that is someone's skull...

Speaking of Spike's lollipop head, how is his brain still able to be operated on? When we get that x-ray view of Angel when he's zapped by Gwen in "Ground State," it looks like his organs are all shriveled. Would Spike's heart have to be started for him to be operated on; is that why when he first tried to get the chip out that the doctor he and Harmony snatched had such a hard time? So, so many questions about vampire biology.