The village was set up by DHARMA to observe behavior of unknown people in a staged environment. The inhabitants of this village were involved in the Purge.
The village is inspired by the one found in Monkey island, same kind of huts, same position north of the island, populated by a few savages...
The Door is not a decoy at all, it is a real station. Michael never found the actual entrance.
The Staff had a hidden door that led to a previously unseen area. There could be similar hidden areas within the Door that Michael did not notice.
This is the original home of the hostiles (Richard later takes ben to the camp), there are more of these camps on the Island.
The Door may have been an operational station until an incident involving the volcano occurred, this is why the door is surrounded by dried molten rock that has formed around the door, also why there is only rock behind the door, as it is dried lava.
The village was where the survivors of the wreck of The Black Rock lived. This is supported by the doors to the huts--notice the metal hinges that could have been salvaged from the wreck, or even the entire doors could have been salvaged for that matter. Also, the outer covering of the huts is reminiscent of sail canvas. It's likely that the survivors would have lived near the sea, where they could have potentially flagged down passing ships.