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Elbow and Pompey burst in and Elbow accuses Pompey, again, of being a criminal. (Thank goodness for this comedic interlude, because the previous scene between Isabella and Claudio was getting pretty heavy, don't you think?)
The Duke (still disguised as a friar) tells Pompey that he's disgusted by the way Pompey earns his living as a pimp. How can Pompey live with himself?
The Duke orders Pompey to prison, where Pompey should be punished and rehabilitated before his release.
Elbow insists that Pompey appear before the Provost, who will almost certainly sentence Pompey to hang since he's already been warned about being a "whoremaster."
Lucio enters and asks how Mistress Overdone is doing. Pompey tells him that Mistress Overdone has been overworking her employees and is now seeking treatment for some kind of nasty venereal disease.
Pompey says he's going to prison for being a "bawd" (pimp) and Lucio says something like "Have a good time in prison."
Lucio asks the "friar" if he's seen the Duke, and the Duke is all "gee, I haven't seen him."
Lucio complains that Angelo is too harsh a judge and then proceeds to spread a rumor that Angelo is the "spawn" of a mermaid, urinates ice, and is incapable of getting an erection. (We're not kidding.)
Lucio complains that the death penalty is way too harsh a punishment for having sex outside marriage and insists that the Duke would never stoop to such an unjust punishment.
Lucio continues to talk trash and claims the Duke likes to spend time with prostitutes.
The disguised Duke is not happy about this.
Lucio exits and Escalus enters with the Provost and Mistress Overdone.
Mistress Overdone is on her way to prison for running a brothel for the past eleven years.
As she's being taken to the slammer, Overdone claims that Lucio has set her up and that he should be arrested because he got a prostitute, Mistress Keepdown, pregnant a year and a half ago but refuses to marry her – even though he promised that he would.
Meanwhile, Escalus chats up the Duke, who claims to be a friar visiting from the Vatican.
The Duke tests Escalus's loyalty by asking, "so, what do you think about this Duke Vincentio guy?"
Escalus passes the test by giving the Duke props.
Escalus and the Duke discuss Claudio's plight. The Duke says that Claudio has prepared himself for his inevitable death and willingly accepts that his punishment is just.
Escalus complains that Angelo is so tough that he seems like the personification of "Justice."
The Duke says it's OK for Angelo to be tough, so long as he lives by the same rules and laws that he enforces. (Yeah, right.)
When Escalus runs off to visit Claudio, the Duke tells the audience that Angelo's hypocrisy is shameful – that's why the Duke is going to teach him a lesson by tricking him into sleeping with his ex-fiancé.