I took it as an actual admission of his agency in her death, and his intent to have killed Billy. His timing was intended to enrage Billy, and apparently it did.
When Stolz tells Lucy to have Donald call him, it proved to me that the two knew each other, and that Donnie ejected him for not succeeding at any of the plans to kill first Billy and then the case. Stolz's grisly end and deposition into Billy's trunk were as much a message to Billy (and perhaps to frame him) as they were a debasement to Stolz himself. I actually felt a bit sorry for Stolz (German for "proud") to come to such a humiliating and bloody end. Up 'til then I was impressed with his abilities and connections.
Also, remember, Donald cannot stand weakness in others. Failure = weakness. That's why he stopped returning Stolz's calls... like a jilted girlfriend. I kinda thought Donnie swung both ways, anyway. NTTAWWT!
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