The Mezzanine

Yeah, I actually think it's the best reading of that line. Not so much that it wasn't true as that Spike was pushing for the darkest take on himself to provoke Buffy.

That said, Spike was full-on evil for more than a century. He had a ton of guilt post-soul for a reason. I just think it's arguable that this wasn't his particular flavor of evil. As he told Dru back in season 2, he never was much for the pre-show part of things. But a guy who could wax nostalgic about eating a homeless guy, or commiserate with Anya about not stopping to smell the corpses isn't a fluffy bunny with bad teeth.