My theory is that Jacob had some sort of traumatic experience in his past, resulting in him being split in two. Possibly the island energy, possibly an angry mother with supernatural powers...it's impossible to guess on the 'how'. But the idea is that the bad/evil/malevolence (or whatever) was removed from him in the form of spiritual energy (smoke). So now there is one good person (Jacob) and one bad person (McLoophole), only McLoophole is not really a person--he /used/ to be a person. This is why Jacob never addresses him by name, why they have the white rock/black rock inside joke, why McLoophole can't kill him (except through his loophole), and why that young kid spooked McLoophole (as Locke). Because that kid /was/ him...before the split happened. Also, it's why the boy looked a lot like Jacob.