The ending is complex -- and awesome
OK, I know the party line is to say that ATL was purgatory/heaven that was created after each one died (or some variation of this), but I think that the writers gave us some clues that the bomb going off really did create the ATL, which is a paradoxical world in which the losties are both alive and dead--and thus *also* purgatory/heaven.
When Juliet hit the bomb, something big happened. As others have noted, this is where a time paradox would have been created. That is, if the bomb went off, it would reset time, but it can’t reset time because then they wouldn’t crash, so they wouldn’t be able to set off the bomb. An additional problem is that the bomb would kill them all while it reset time, which is even more paradoxical, because then they’d be dead and alive at the same time—and isn’t dead dead?
This is the paradox that is contained in the ATL. In the ATL they are dead, because the bomb went off. Christian tells us they are dead. But note that they don’t just float up to heaven. They are also in some sense, paradoxically, alive. Note that Charlie was having a “near death experience” even when he was dead. Remember when Jacob nearly drowned Richard to prove that Richard was alive? Near death experiences are generally for the living. In ATL the losties are allowed to live their lives as if time had been reset, which is another possible outcome in the paradox. Both of these contradictory states coexist. (There's lots of evidence that in the ATl world, the island was gone in the 70s.) Additionally, in this paradoxical world they are also able to fulfill many of their desires and redeem themselves. Then, yes, all the stuff happens about gathering together with loved ones in the church, because they are, also, ultimately dead (as everyone will eventually be anyway).
There is another logical possibility to resolve the time paradox. In this world, the bomb doesn’t go off at all – thus no paradox. What happened, happened. That is the island time. In the island time, they don’t die. Hurley doesn’t die, Jack doesn’t die (until later), Kate doesn’t die, etc. The ATL paradoxical world and the island world are connected because they are parallel, so the losties can connect to it. This is why the claim that they died in the crash does NOT mean that Hurley can’t become the new Jacob, Jack can’t plug the hole, etc. They can do these things because in this world the bomb didn’t go off. All of these things happen in different parallel universes that were created because the losties did something that created a paradox.
I feel like I have to defend this, so here are some clues that I think we were given to indicate that an alternative, paradoxical world was created when the bomb went off:
1. Big flash of light, big inversion of “LOST” when the bomb went off. Something big happened. If the bomb just plain was a dud, or just zipped them forward in time, this seems sort of silly, as was all the discussion and planning about setting it off. But if two separate worlds were created, one of which had them paradoxically alive and dead, it is a fittingly “epic” moment.
2. Juliet says “it worked” before she talks about going for coffee with Sawyer as she is dying. If no alt reality was created, why did she say that? “it worked” just means that they’ll meet up in heaven? That the candy bar came out? Seems misleading.
3. Why did Eloise send them back to the island in the 70s if she didn’t want them to set the bomb off (and therefore change time and prevent her from shooting her son)? If there was no way for them to change time, a good deal of the story becomes meaningless. Eloise was driven to train Faraday in physics so that he could change time. This is a good long part of the storyline and it isn’t for nothing.
4. There was a good deal of discussion from Faraday, Jack, etc. that the bomb would reset time. If they were just plain wrong, then all of that was a waste of time, and I don’t think the writers would do that to us.
5. Sawyer, Jack, etc. kept saying “See you at LAX” when they tried to set off the bomb. This is another hint -- they do meet up in LAX, because when the bomb goes off, they create a paradoxical world in which they didn’t crash.
6. Why does the alt timeline narration begin only after the bomb goes off? Just coincidence? A red herring? I’d like to give the writers more credit than that.
7. Finally, we have lots of evidence that in the ATL world, the island was there, but then gone. Ben lived on the island for a time (so it wasn't just vanished) but then left it. Farady didn't have to become a physicist but could be a musician, etc.
In other words, if the ATL is just pure and simple a purgatory, then the writers wasted a lot of our time. I think all of the talk about time changing, burying the bomb, finding the bomb, Faraday’s plans, Eloise’s plans, etc., were not red herrings but were an integral part of the storyline.
The fact that the ATL was created as a possible outcome of the time paradox doesn’t make it less interesting and it doesn’t mean that no one can be alive in the island world. Actually I think it makes the whole ending much more interesting and satisfying because it makes sense based on what they’ve told us all this time. It’s very fitting.
And yes, they also tell us that when the losties die, they are joined together and they all wait for each other in heaven’s waiting room. That is all true and worthy of discussion. But it doesn’t take away from the fact that the ATL can be heaven’s waiting room but also a paradoxical universe created by the bomb *at the same time*.
The ending is complex -- and awesome