The joke was at the beginning--within the first 5 minutes--of season 5, episode 20, which first aired 18 December 1993.
The joke doesn't make any sense--to me, at least--but given that the MST3K reboot during the covid era--produced by Joel himself--was a gay woke-fest, you have to wonder. Maybe Joel knew something we didn't at the time.
Edit: It is a Mike Nelson episode. Immediately after the Epstein reference, Mike is ripping up a pair kid's underwear (briefs).
I checked it, and it's after a string of "Welcome back Kotter" character name references, which also had a character named "Epstein". I don't really think it's supposed to be funny beyond being a callback to Crow becoming Horshak a minute earlier. The "underoos" thing is only a few seconds later, but isn't really presented as a related joke. I think it's a coincidence. Anyway, the episode is here if anyone else wants to check.
Ctrl-f "jew" in the "Welcome back Kotter" wiki entry for a laugh at jews being jews.