Frosstbyte

Sure, that's significant. However, given the course of the storyline, all of the hatch stuff just seemed out of place. Hurley wasn't in or around the hatch. His flashback wasn't relevant to what was going on in the hatch or with the others or anything else.

The episode was clumsy. Good episodes do a good job of integrating the primary storyline/mythology with the individual who is at the heart of the episode and his flashbacks. "The Long Con" is, in my opinion, the best episode period so far. Everything that happens works in concert to advance the overall storyline, advance the characters in the present and to give us more background on Sawyer in the past.

This episode showed us some random facts about Hurley and one random fact about his ladyfriend. It also showed a few random facts about Locke's condition, Sayid's frustration, Henry's resolve and the structure of the Others. It didn't do it in an elegant and coherent manner like they've shown themselves capable of doing in the past, and I would've rather learned the fact that Mr. Friendly has a big scary boss in a more compelling fashion when it seemed to reflect upon the experiences of the protagonist of that episode.

Edit:
I very much disagree with the analysis that the fact that she was in the institution shows that the entire island is in Hurley's head. It would be such an immensely cheap parlour trick to have that happen. I feel like it's there to tease you as a "wouldn't this be interesting" but I don't think it has a lot of merit. For example, why would we have seen all of these dispirate background stories if they're all constructs of Hurley's delusional mind?

Hurley clearly doesn't know everything about everyone, so what possible device would there be for us to have seen background about people if Hurley (who would be our only source) doesn't actively know about them himself? There would have to be an enormously bizarre combination of his brain creating very elaborate stories about all of these people and then repressing all of that creative energy so that he doesn't actively know it.

If Hurley were Jack (i.e. the person that the show has focused on the most), I think there might be an argument for it being in his head. Hurley has been too much of a side character for me to really think it works. Lost, in general, isn't really very conducive to being relegated to being someone's delusion, because there are so many people with so much going on. Now, if they're all under the influence of the *SAME* delusion, that's another question entirely.