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My theory on the Smoke Monster:
When Jack dropped the bomb down the shaft and Juliet detonated it, I think it did re-set everything, and it would have actually destroyed the island. But, MIB absorbed the blast and the electromagnetic energy, turning him into smoke...but the electricity bound his atoms together holding the smoke in one place...giving him thoughts, movement, and vision. The Smoke Monster (aka MIB) can distort his molecular structure to form other people (Christian, Locke).
It sounds far fetched, but hey, this is Lost!