Here's my one-eyed synopsis (I was also on the computer at the time)...
Ana-Lucia went into the "jail cell" to bring Henry some food and--of course, cause she's a bitch--taunt him a bit. Henry responded by leaping into action and trying to choke her to death. It was foiled by a well-placed crutch-shot to the back of the head by Locke. While attempting to kill her, Henry told her the Others were basically only picking people they thought were "worthy". He said that the guy Ana-Lucia killed wasn't necessarily trying to kill her (but, as usual with Henry, we don't know if he's full of shit or not). Later, Locke asked him why he didn't try to kill Locke, and Henry said Locke was one of the good ones, and that Henry's mission--when he got captured by the Frenchwoman--was actually to come to the hatch and "get" Locke (kidnap, I assume).
In Ana-Lucia's backstory, we learned that her mom knew Ana-Lucia offed the guy who shot her. Ana-Lucia then met Jack's dad in a bar, and Jack's dad asked her to come to Australia as his bodyguard. They used fake names, so she doesn't know it was Jack's dad. In the flashback, they drive out to the boonies and he tries to force his way into a woman's house, apparently because she was his mistress and had a child by him and took off to Down Under, and now he wants to see the kid. He said to Ana-Lucia, in a nutshell, that they were miserable SOBs and should go drink some more, and she said, "No." (This is where the audience goes, "Ah ha! She's trying to turn her life around. This must mean she'll be dead in 28 minutes...")
Hurley decided he wanted to take Libby on a romantic picnic, but he was pretty inept on the task, getting them lost and then ending up back at their own beach, where he promptly forgot blankets to lie on. Libby went back to get them.
Michael awoke and told them that the Others live in tents, there are only about 22 of them, they seem to have no guns, and he saw no kids or captives (no sign of Walt). He also said they have a hatch (which got Locke's attention).
Ana-Lucia was none too happy about being choked, so put it in her mind to "off" Henry. Needing a gun, she asked Sawyer, who told her to pound sand. Later, she followed him into the jungle, but he heard her following him. There was a confrontation, and she tried to take his gun from him by force, and--as always happens, at least in my life when a chick is trying to mug me--they got their freak on in the jungle.
Jack decided it was time to get the guns back from Sawyer so they could go after Walt. He, Kate, and Locke went to confront Sawyer. Jack pulled a gun on Sawyer and said "give us the guns", and Sawyer went for his own gun and realized Ana-Lucia had snagged it during their little sexcapade. Locke realized Ana-Lucia was going to shoot Henry.
Ana-Lucia went in and gave Henry a knife and told him to cut himself loose (apparently so she could shoot him in an "escape" attempt). But she couldn't shoot him. Michael woke up, heard her tale of woe ("we have an Other, he tried to kill me, I want to kill him, but I couldn't", blah blah blah). Michael said, "Let me do it." She handed him the gun. He said, "I'm sorry," then blew her away. Libby walked in holding the towels and he shot her too. Then he walked to the cell and opened it: Henry got up, they stared at each other, Michael pointed the gun at him... and then turned it on himself instead.
Judging by next week's teaser, he apparently shoots himself in the left shoulder (I assume to make it look like Henry did it all and escaped). It seems like either a.) he was brainwashed, or b.) the Others told him to free Henry or he'd never see Walt again. However, the promo also showed Michael in what looked like the cell, and they also showed Ana-Lucia dead and Kate saying, "She's dead" (not "they're dead"), so I'm wondering if it turns out Libby was only gut-shot and lived (or lived long enough) to tell them that Michael did it.
I'm sure I left stuff out.