On whether the characters were actually dead the whole time (Since the time the plane crashed): "No, no, no. They were not dead the whole time," Cuse said definitively, adding that he believes that some footage they showed at the very end of the series lead to much of the misunderstanding among fans.
"At the end of the series finale, [an ABC exec] thought it would be good to have a buffer between when you have the end of the show and when they cut to say, a Clorox commercial," Cuse explained. "We didn't have a lot of extra footage lying around, but we had footage of the plane wreckage on the beach," which they shot when the plane needed to be moved or it would have been washed out to sea. "We thought, let's put those shots at the end of the show and it will be a little buffer and lull. And when people saw the footage of the plane with no survivors, it exacerbated the problem."
But the characters definitely survived the plane crash and really were on a very real island. At the very end of the series, though? Yep, they were all dead when they met up in heaven for the final "church" scene.