Everything that happened on the island DID happen and they were all still alive on the island but they were being tested constantly. Jacob told Richard he wasn't dead when he first came to the island and that he wanted people to come and do good but he didn't want to intervene - he wanted people to make good decisions for themselves. He also said it didn't matter about anything else you had done before the island, you were given a fresh start. When they all died (which were all at different points in time) - e.g. Shannen died on the island in S2, Jack in S6 and the people who got on the plane and left the island at the end of S6 would have died at different points after that like any normal person. When they did the alternate reality flash forwards, that was when they had all died and they were in a sort of limbo waiting to find each other. Which is why they remembered when they found the people they were meant to be with (soulmates). When they had all found each other and remembered each other, they went to the church and could all go to heaven together. They had to all be together though before they could get into heaven (just like they all had to be together when Jack, Kate, Sun etc. went back to the island in S5).
Most people survived the plane crash but everyone died on the island and were sent to this church thing when they did. That is what I think happened because they really leave it up to you to interpret. There is no right or wrong answer,