At a town meeting at Moe's Tavern, people say that Moe's best friend is his old bar rag. Bart continues with the joke by comparing the rag with Milhouse. Insulted, Milhouse spurns Bart's friendship. The rag tells its life story, from being a medieval French tapestry, woven by Marge after Mr. Burns, Duke of Springfield, killed all their sheep which released demon spirits that forced Marge to weave the encounters the tapestry would have, the Duke was later accidentally hanged by the tapestry when he fell off a mountain; going to a cathedral before Vikings attacked it and Homer tore it; and then to the king of Persia (Nelson), who is then told 1001 stories by Scheherazade (Lisa), finally she releases his other wives who were thrown in a pit for being boring and decapitate him; being used as a blindfold for the executed and cloth on the chopping block in France; being used as a paint rag by Michelangelo in his creation of the Sistine Chapel; being used for a Confederate flag during the Civil War; made into soup during the Great Depression; and going close to the top of Mount Everest as a flag, though the explorer died from lack of oxygen; a yeti then found it and gave it to his son, an infant Moe.
Meanwhile, Bart tries to win Milhouse back as a friend, going to his house at night. Milhouse refuses at first, stating that he is doing well without Bart. Bart reads a poem about friendship to Milhouse, but Milhouse figures out that Lisa wrote it, and tells Bart that he can only win him back by doing something from the heart. As a gesture, Bart agrees to let Drederick Tatum punch him. Milhouse is deeply moved, and renews their friendship.
Moe wakes up to find the rag has been stolen. The thief is revealed as Marge, who cleans the rag before returning it. Moe then realizes that he has real friends in the Simpson family, and tosses the rag out the window for Santa's Little Helper, who takes care of the rag and then fights over it with Maggie. The rag, meanwhile, is overjoyed to have finally found an owner who truly loves it.