I think it is quite obvious that they aren't in hell. In fact those were the first words out of my mouth at the first commercial. I have quite a few reasons to back it up
-It surely would seem like hell to the MiB, and Jacob would surely seem like the devil. He took his body and is holding him on an island against his will.
-It would also seem like hell to Richard after a while, and the MiB did a fairly good job of manipulating him into believing it was. He told Jack & crew that it was out of anger and frustration. By the end he seemed convinced again that he does have a greater purpose on the island.
-Jacob gave a very good explanation of why they are all on the island, because he wants to show the MiB that people can atone for their sins and change.
