Now, strictly speaking, it doesn't follow that he cannot be ugly. For all we know, the constellation that holds in the area of judgment (knowledge vs. ignorance and a middle ground between them) may have no counterpart in the area of beauty. I think it plausible that it has; however, we're not given an account of such a counterpart constellation, so it's anyone's guess what form the middle ground would take.
Moreover, even if we accept that an 'in-between' constellation holds in this area, it would still require further argument that eros in fact occupies the middle ground, and not the 'ugly' extreme. And again, to even understand this, we'd need an account of what it means to be 'in-between' here, an account that sufficiently explains what the difference is between beautiful and ugly things on the one hand and 'in-between' things on the other hand. Again, no such account is on offer in this part of the dialogue.
(As I have argued, at least there's one form we should reject: a continuous spectrum of a single quantity. That seems both implausible in itself and it also doesn't fit the many parallels Diotima gives in the text, which always contain a second dimension that accounts for the 'in-betweenness', not simply a single linear continuum.)
However, Diotima doesn't pursue the analysis further in that direction. It seems enough for her to have shown that it doesn't follow from the account of eros as not being beautiful that he must therefore be ugly. The discussion switches directly from that question to the question of his status of a god or otherwise. What are we to make of this change of subject?
4) At this point, we have to change the focus of discussion. So far, I have looked at single lines of thought and particular examples. We must take a wider view of the discussion now and get clear about the function these lines of thought and examples have in the overall discourse.
As I see it, both the claim that eros is 'in between' wisdom and ignorance (and thus, is a philosopher) at 204a–b and that he is 'in between' beauty and ugliness at 201e–202b, drawing on the supposed analogy of correct opinion being 'in-between' knowledge and ignorance have a supplementary function in the text. They are not meant to contribute direct evidence for the main thesis; rather, they spell out corollaries of intermediate results.
The main line of argument, the real focus of attention, takes its departure from the claim that eros is needful of beautiful things and from this moves to an account of eros as a spirit (not a god) whose nature is explained in detail, both with philosophical argument over some of his attributes and with a mythical story that is supposed to give an intelligible motivation of these attributes; finally it culminates in the definition of love's object as "giving birth in beauty, whether in body or in soul" at 206b.
That's the main line of argument; the claim that eros is not ugly, but 'in between' beauty and ugliness, simply spells out the consequences of the result established earlier: that eros is needful of beautiful things and thus cannot be beautiful. (Whether you buy that latter claim or not; it certainly sounds confused to me.) Likewise, the claim that eros is 'in between' wisdom and ignorance, and thus needful of wisdom too, as he is needful of all beautiful things (wisdom is something beautiful) is a corollary of the nature of eros as it has been pictured in the passage that directly precedes that claim.
Even though they don't directly contribute to the argument for the main thesis, these points don't just have a supplementary function. As I have mentioned before, they also continuously connect the discussion with the areas of ethics (by bringing concepts like 'good', 'bad' and 'wisdom' into play) and epistemology (by use of analogies such as the one involving knowledge vs. correct opinion). What's more, these associations are not simply evoked by casually dropping those terms, but by an attempt to find similar conceptual structures ('in-between' constellations) in all these areas. Some of the connections seem a little forced to me, and generally I'd have wished they'd have been spelled out in more detail, but I think it's evident that this is Plato's rhetorical strategy in his use of these examples.
 (The teachings of Diotima have a second part, the famous ascent of love. At the level of the structure of the text, considering the rhetorical format of the speech, it's an independent section, and it also conceptually doesn't depend on the myth of eros in the first part, and the elenctic results there. It's where Plato demonstrates that philosophy can give an account of love on its own; an account that still appreciates everything that's valuable in love, yet without need for either the sophistry or the myth employed in the first part. But my goal here is to get clear about the use of the 'in-between' concept in the first part, so I'm not going into this any further.)