Wu read Lloyd a children's book when they first take him in, it how Wu teaches Lloyd theater what he did was wrong. That's cool, sweet, whatever.
But then Lloyd apologize, but he doesn't apologize for what he did, he apologized for his father not being there to read him this book.
Then Wu tells him that he doesn't need to apologize, because if his dad was still here then he's sure he would read it to him.
Notice how Wu doesn't apologize for not taking him in? Or taking him in when Misako left? Or when the Ninja first "fought" him?
Wu doesn't even realize what he actually apologized for, and he tells him things like "...if your father was still here..." He is! He's just evil! This kid wants his family and your making seem like his dad is dead, how dare you. That comes later-
Then there's the riddle to the whole episode, "What is the best way to defeat an enemy?" Eventually, they come to the conclusion that the best way to defeat an enemy is to make them your friend.
Wu I really need you to realize that, that is your nephew not your friend.
He needs an adult! Not a sensei or a friend! He needs love and story's that tell him right from wrong! Not your little charity case!
Anyways, let's fit the episode message.
"What's the best way to defeat an enemy?"
"By making them your friend family."