Team Rocket did NOT see Pikachu in the first episode. I just watched the first 5 episodes, and here's the simple version of what really happened:
In episode 2, Team Rocket came to the Pokemon Center to steal the Pokemon there. To quote Jessie when Ash tried to protect Pikachu, 'We don't want your puny electric rodent.'
They were there for other Pokemon.
Later during the battle, Pikachu asked Ash to give him a power boost, which Ash did. Pikachu then used his Electricity to blow up the whole building.
Right after, Team Rocket was impressed by Pikachu's power, and swore to try and catch it.