He first demanded a night and a day in the Queen's bed as his reward if he could defeat the King's Champion. Then, as they rode toward each other, Lister activated the first code - "Steedcheat". The Good Knight's horse instantly became a small donkey and Lister was able to chop off the Knight's head quite easily.
The Queen was happy to go to Lister of Smeg's tent, but the King brandished a key and stated that Lister's plan would not succeed. Lister then activated his second cheat - "Chastitycheat" - which caused the Queen's chastity belt to fall off. They then entered Lister's tent and proceeded to make it sway back and forth. The King demanded that Lister beg his forgiveness, but all Lister did was emerge to ask for whipped cream. Lister's "activity" was curtailed by a power drain caused by Ace Rimmer's ship dimension jumping.
Later, the Good Knight emerged from the AR suite to look for Lister of Smeg. He attacked Rimmer, believing him to be a member of Smeg's retinue. This was a ploy by Lister (who was dressed as the Knight) to encourage Rimmer to fight back and become the new Ace. (RD: Stoke Me A Clipper)