I've posted a couple of theories on her that propose that the island being underwater is not the result of Jughead, that we will see how the island is submerged later this season, and that the off-island flashes we are seeing are actually the show's epilogue.
http://theoriesonlost.blogspot.com/2010/02/how-lost-ends-expanded-theory-by.html
http://theoriesonlost.blogspot.com/2010/02/faraday-and-why-jughead-didnt-sink.html
It's a lot of reading, so sorry about that. For a quick recap, her goes:
1) Jughead did not create the "alternate" off-island timeline.
2) We have not seen yet why the island is underwater but we will later this season (I am guessing that it is "moved" there).
3) Because the island actually "sank" prior to 1973 in the "alt", we will see Ben Linus off-island and he will be a fine up-standing citizen.
4) The "alt" is the end of Lost, everything else is just progress to get us to that point.
5) Faraday still has a role to play in reconciling the 2 versions of reality we are seeing.
6) In the alt, we will start to see each of the characters find "resolution" to their stories.
I want to add onto these theories after seeing Episode 3. In particular, I think we saw a little bit of #6 coming to fruition.
"What Kate Does"
The triangle is over. No Skate. No Jate. Kate only has one man in her life now, Aaron. The reason she went back to the island is to bring Aaron and Claire together. At the end of the episode, we learned the darkness has taken Claire. It is seeming very unlikely that Kate can reunite Claire with her son in the 2007 timeline.
But what did Kate do off-island? After helping Claire get to the hospital, she told Claire that she thinks she should keep Aaron. We haven't seen if Claire will take Kate's advice yet, so only time will tell.
She probably won't reunite Claire and Aaron on the island. But it looks like she may have before it is all over.