“Purgatory: They’re all dead”.

In essence: Everyone on the island is actually dead and their actions on the “island” determine when they will leave Purgatory for heaven - no one in Purgatory goes to hell it is a period of purgation of sin before facing God not an in between place with an option for heaven or hell. If one is in purgatory, one will eventually be in heaven. That is the traditional understanding/teaching and it likely makes this theory less plausible.

Support

Purgatory, which explains why women cannot give birth to children conceived on the island.
Also in the episode “The Brig” when Sawyer asks John’s father, Anthony Cooper, how he got to the island, he explains that he was in a car accident and the next thing he knew, he was tied to a chair and gagged and looking at his “dead son”: John Locke. Sawyer asks if he thought Locke was dead because he threw him out of a window and Cooper replies: “He’s dead because a plane he was flying on crashed in the pacific.” Sawyer doesn’t believe him, then Cooper says: “If this isn’t hell, friend…then where are we?”
In “A Man Behind The Curtain”, there are a few things that support the purgatory theory. One is when Young Ben sees his mother, who died when he was born, on the island. Another is that when we see Richard in Ben’s flashbacks, he appears to be the same age then as he is now. Maybe he's not supposed to seem the same age but could it be because he is already dead? Also, Jack sees his dead father. Kate sees a dead horse.

In between: I think that they all do have to do something to get off the island but i think that when you "die" on the island you go back to the outside world. To the life that you had before but you still would know what had happened on the island

Poking holes: Although this is the favorite theory seized upon by every viewer new to the show, you’d have a bunch of seriously pissed off actors if true.

"I don't like to think we are already dead and this is for nothing. Why are we running around away from the monsters if we're already dead?" Yunjin Kim told Comingsoon.net.

"It’s not what it is, but it works as a metaphor for the show," says Abrams.

To put it more plainly, co-creator Damon Lindelof has outright dismissed the notion. "It's one of the main theories that came out in season one — but no, these guys are not dead." In the May 19, 2006 issue of Entertainment Weekly, he again debunked this: "We have said that this is not purgatory, but people don't want to believe it... These human beings have hearts and when those hearts stop beating, they are dead."

Plus, the Gary Troup anagram marks one of the many shout-outs to theorists, and others.

In addition, in the last episode of Season 2 (Live together, die alone) we see the outside world. If the Island was purgatory then the outside world would not exist and would not be able to interact with them. But the discharge was picked up by the Portugese.

Also, if they were in purgatory, why are Walt and Claire's baby Aaron there? They are children and as such wouldn't be there; children are innocent and would go to heaven. Rebuttal:: According to tradition, children who die before they are baptized go to purgatory instead of heaven. Disagree...many blievers do NOT believe in purgatory. We believe that children go directly to Heaven.

Update: With the revelation in "D.O.C." that the jet was found and there were no survivors, purgatory theorists seemed to have been vindicated. However, in the April 30, 2007 Official Podcast, Damon states "We were not lying and it is not purgatory."

It can't be purgatory, Richard goes on & off the island. He picks up Juliet and is already on the island when Ben sees him as a little boy. But then the question: Why doesn't he age? comes to mind.

"Purgatory Plus" Theory:
It's not the official "purgatory" from tradition. Instead it is a place where the dead go when they have unresolved issues. But it is still a physical place, a real island, hidden from the world by a barrier. A cloaking bubble if you will. Hanso foundation researchers accidentally found a way in via an underwater route while exploring the ocean. Thus, the only way in (without dying) is via a submarine. They set up the DHARMA initiative to study the Island.
Richard & the other "hostiles" are the guardians of this place. Richard is not human. That is why Richard does not age. (Richard is the only character that we know for sure has left the Island.) That is why they were attacking DHARMA. The living do not belong on the island.
Every crash survivor that has died (on the island) has recently resolved some lingering life issue. That is why Charlie's time is up. He has resolved all of his issues.
Thus we have classes of people on the island...
The Living: (Anyone who came by submarine; Ben, Juliette, DHARMA workers.)
The Dead: (Flight 815 "survivors")
The Guardians: (Richard, the smoke monster.)
Danielle says that the smoke monster is the Island's security system. It is stated that the sonic fence keeps out the smoke monster. The fence also kept out the hostiles (until Ben let them in). Could Richard be the smoke monster?

With some characters it is not clear whether they are living or dead. Such as Desmond. Why did Desmond not die when the hatch exploded? Perhaps he did. Perhaps he was living and now he is dead. He did not gain his abilities until after the explosion.


Dante Alighieri: In Dante Alighieri's, The Divine Comedy, the author describes heaven (paradiso), hell (the inferno), and purgatory (purgatorio). He provides a diagram of purgatory. The first thing you enter when you come to purgatory is called "The Island." Perhaps this is where the survivors are. The ones who have died (Boone, Shannon, etc.) have moved on to the other levels of purgatory after being "purified" on the Island. Dante had to wash the stains of hell from his face and the film of hell's vapors form his eyes. This could be all of the bad things that the survivors have done. It seemed that whenever a character had redeemed themselves, they "died." This could have been because they had cleansed themselves and were moving on to the next level.

Acording to Dante, greedy people go to the fifth terrace of purgatory where they are forced to lay face down on the ground and are unable to move. Nikki & Paulo (done in by their own greed) end up being buried alive while paralyzed.