Holy guacamole, Batman, they fried my brain like a taquito last night! This was basically the episode that any theorist who ever speculated about the origins of Dharma and the Others has long awaited. And while it didn't answer all of the big mythological questions, I think we got enough to form some solid speculations about (as Marvin Gaye might say) what's goin' on. Some may say that the title of the episode is an allusion to illusion, and that Jacob does not actually exist. But, while I agree that Ben is lying mentally ill, I'm going to go out on a limb and say for the record that Jacob is 100% real.
More specifically, I think that Jacob is the electromagnetic consciousness of someone who died on Craphole Island. My guess is that He was a powerful psychic and the leader of the Others at the time of the first Incident, which probably killed Him. Maybe, like Dr. Manhattan in Watchmen, Jacob's body was obliterated but His electromagnetic "soul" persisted. Ben is presumably special because he alone among the Others can see and hear Jacob. That's where Ben's mental illness becomes relevant -- like Hurley or Tyler Durden, he has some combination of DID and schizophrenia. This brain structure makes Ben well suited to channel Jacob's consciousness and energy. Ben has become His mouthpiece, speaking for the dead. But who controls whom at this point?
My suspicion, which some of the Others (e.g., Richard) seem to share, is that Ben is holding Jacob's "ghost" prisoner in that remote cabin in the jungle, tapping His powerful mind to maintain power. That's why Ben is so threatened by Locke, who can also hear and see Jacob's ghost. That's also why Jacob's first words to Locke were "Help me" -- precisely what you might expect to hear from a prisoner. I once argued that the Lost Experience is basically a metaphor for the show. Recall that the main plot line involved a dude of dubious origins (i.e., Mittelwerk) taking control of the Hanso Foundation and imprisoning old Alvar Hanso himself. That's basically what's happening on the Island now. Ben has seized control of Jacob's foundation, holding Him prisoner and speaking in His name.
Here are some other things I noticed:
* What was that sandy substance that Locke stopped to inspect? Sure looked to me like a boundary of some sort. Could this be part of what keeps Jacob confined to his cabin? ETA: A poster named koralis speculates that it was a binding circle (used to conjure spirits) composed of the same material that messes with navigation on and around the Island.
* There was definitely a bearded figure in the room with Locke and Ben during the encounter with Jacob...
* How funny was it when Alex gave Locke the gun, then wished Ben a happy birthday? Makes me wonder if other Others have gone to see Jacob -- never to return...
* Ben may have lied about not being born on the Island but I thought it was interesting that he was delivered just outside of Portland -- i.e., Not in Portland, which was the name of Juliet's first flashback episode.
* Ben's teacher stressed that the Island's volcano erupted at some point in its distant past. My suspicion is that this eruption sealed the Fourtoes' civilization under ash and lava like Vesuvius did Pompeii and Herculaneum. Could this eruption have been the catastrophic course correction caused by the Fourtoes' efforts to manipulate fate?
* Has Richard Alpert aged at all since he first encountered Ben as a boy?
* Just how long had the Island's "original inhabitants" been living there prior to Dharma's arrival?
* Will we ever see the events mentioned on the Blast Door Map (e.g., the AH-MDG Incident) depicted on the show?
* Interesting how Ben's little girlfriend was named Annie, which also was one of Kate's aliases. I would say this is a stretch but that strange breakfast on the beach with Ben and Kate has always bothered me. Some connection would make sense, even if it seems improbable...