Lost -- what we know now
I'm feeling a little bit clearer:
They're not dead, they're not in Purgatory, this isn't all in Walt's mind. They're on an island that doesn't appear on maps and can't be found by normal means because of the magnetic anomaly that may or may not still be in existence. Michael was given specific directions on how to leave, so there is a way out.
The button did actually do something, although it might also have been a psychological experiment (presumably there's an easier way to defuse the anomaly than having somebody press a stupid button every couple of hours).
The Others' camp is a ruse, they actually live in another hatch located beneath the ocean.
Desmond's love is either looking for him, or using him to find the island. This reinforces the facts of the food drop -- they're still connected tenuously to the outside world.
Still to be determined: The Others knew who was on the plane before it crashed and the Hanso Foundation seems to have been pulling strings to bring these people to the island. How then did they know Desmond would cause the crash? Was Libby manipulated into giving Desmond the boat, or was that another coincidence? What about the four-toed statue and the heiroglyphics on the countdown? There's a relgious element (aside from Locke and Eko) that has only been hinted at. The mysterious, and perhaps fictional disease, that requires protective suits and antibiotics. The crazy Frenchwoman believes it's real, Desmond doesn't. The Others weren't surprised or alarmed by Desmond activating the failsafe, which hints that the anomaly may be more resilient than Desmond thought.
Some of those points may be partially clarified by the Lost Experience going on this summer, the others will wait for next season. Hope Mr. Eko survives.