Hey dshnookie,
I took that moment as an example of "free love" shown through Woof's POV. I'm not sure of its significance, but it is the second time I remember Woof's advances being denied. The first time I noticed it was in "Where Do I Go?" when he offers his flower to Jackie Burn's character and she turns him down.
And for the second part of your question I stole this from
http://www.songmeanings.net/songs/view/126314/ -----
"Facing a dying nation of moving paper fantasy listening for the new told lies" refers to the lies the government told the American people refers to the thousands sent to die to Vietnam and the lies the government told the American people about them that were told through a paper based bureaucracy.
"With supreme visions of lonely tunes" I can only hazard a guess refers to the godliness of man that is often alluded to in Hair and Hamlet, but while we are listening to the government's lies we look for the truth that is found in the beauty of man and in art and song - but the truth is each of us is lonely on this Earth and like Hamlet, we are alone in action and eternally seeking the truth.
The second verse refers to the beauty of man and the unknown equation that is life - Hamlet says "conscience doth make cowards of us all" (in reference to our inability to take our own lives rather than exist with the pain life brings). Instead of saying though why don't we kill ourselves, this poses people as being gods capable of greatness. "I fashion my future on films in space" refers not to "Film" like in a camera but is a more cosmic reference to the thin that creates our reality - this is a much more hippieish belief that we have control over our reality.
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That's just one person's interpretation.