The characters on the island are alive. The island is a real place on earth, where there is a cave, with a well inside and The Light beneath it.
The Light and its surrounding is a machine/mechanism/device that works this way:
1- Its main function is to manage souls.
2- The stream that enters the cave and reaches the well is the mean of transportation through which every soul of the deceased (Death) is driven to The Light (that’s why when The Light is put out, the stream stops and when The Light is recovered, the stream flows again).
3- In the well, The Light judges the acts while alive of every soul and decides whether to let a soul ‘move on’ to afterlife (Rebirth) or spit it out to the island where it is unable to get out and condemned to wander forever (this would be Hell, and that’s why the island holds all the evil inside the bottle).
4- The well also has exits for the stream. In the well The Light creates new souls for the newborn (Life; Source) and are carried out of the well again by the stream. (that’s how and why we all have The Light inside).
5- That the main characters seem fated to go to the island and are in fact attracted by the island, or that some of them have special capabilities (Desmond & electromagnetism, Miles & Hugo & dead people, Walt, …) may be explained by the amount of Light used when their souls where created in the well. In some way it is The Light that creates special souls for people who may, in the future, be important for It’s protection.
6- If The Light goes out, it means that all of us, every living soul will not be able to reach the well and ‘move on’ to the afterlife. Souls would have no guiding light. That’s why there is nothing more important than protecting it. That’s why “…if the light goes out here it goes out everywhere…”. I would add: it goes out for everybody.
7- The sideways purgatory takes place in the well, where the souls of the main characters gather and wait for each other before ‘moving on’. The Light beneath the well welcomes the characters at the very end of the show. This is possible only because Jack managed to put the cork stone into place.
The Smoke Monster:
1- When MIB falls into the cave, he reaches the well and crashes into the cork stone, but not hard enough to knock it over. This creates a distortion in the well that darkens the cave temporarily and shakes the earth.
2- The Light manages MIB’s soul by spitting it out to the island since MIB’s acts won’t let it ‘move on’ to afterlife.
3- But, because of the rare and exceptional way MIB has reached the well, and because of the distortions he has caused in the well, when his soul is spit out by The Light, it also takes with it some of the electromagnetism that reins in the well, which is a manifestation of The Light. So basically the black smoke is the MIB’s soul concealed in a cloud of electromagnetism/Light from the well. Plus The Light gets rid of MIB’s body. That’s why when The Light goes out, MIB loses his powers. He loses the electromagnetism/Light he unintentionally stole from the well and becomes MIB’s soul in Locke’s body.
4- Because a part of MIB is electromagnetism/Light from the well, he cannot directly kill The Light’s protector or his candidates, and cannot put The Light out by himself.
5- Because MIB is a condemned soul by The Light, he cannot leave the island unless MIB puts out The Light and, by doing this, gets rid of the imposed tie to the island.
Origin of The Light:
Egiptians believed god Anubis, associated with the afterlife, created The Light (see well known hieroglyph of Anubis). But I bet the origin of The Light predates the egiptians. In the beginning, The Light dwelled in a natural cave and the Light Device worked in a natural surrounding (see the well of souls in wikipedia) and it was not until sumerians or egiptians came around, that humans knew about the importance of The Light and the need to protect it and left their imprint (carvings, hieroglyphs, stonemasonry,…) . The cork stone was already there as a natural stone and the carvings where imprinted on it later. You may picture the creation of The Light itself according to your beliefs.
Looking forward to reading your comments...