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Genesis 32:23-34 tells the story of Jacob actually wrestling with a man who most theologians identify as having been God himself. In the story, it appears that Jacob actually persevered in holding God captive and refused to release him until God blessed him. It is at this point that God changed Jacob's name to Israel. What if LOST's Jacob has managed a similar feet? Only this Jacob doesn't release "God," he continues to hold him captive.
Why would Jacob hold "God" captive? To prevent the judgment of mankind of course. The Bible tells us that God is coming to judge humanity. In LOST, the DHARMA initiative was doing research into changing the variables of the Valenzeti equation in order to prevent the destruction of the Earth.
Jacob may have been holding MIB captive on the Island to prevent him from leaving and judging mankind. We know from Ben that Smokey does seem to have the ability to judge mortals.
This would also give a good reason behind WHY Jacob is trying to prove MIB wrong about mankind. It's like when God was going to judge Sodom and Gomorrah, when he promised that if there could be found 10 righteous men in Sodom, he would spare it's destruction. Part of the "rules" between Jacob and MIB might include a provision that if Jacob can find just one person who can make a free-will choice to not be ruled by "sin," then MIB will let humanity live. Jacob might therefore only be holding MIB captive long enough to "prove him wrong" after which, there would be no further reason to keep MIB captive, since "the rules" would prevent MIB from carrying out his plan to judge the Earth.
On an additional note; we still don't know MIB's true name. In the above cited passage from Genesis, Jacob asked God to tell him what his name was and God refused to give it to him. Another interesting parallel.