Jacob is real, not smoke or a ghost in my opinion. Ben is holding him captive somehow and leading the others to believe he is taking his orders from Jacob. It seems as though he may have been altered somehow from his human form. Possibly through some type of Dharma experiment that has left him trapped in another dimension. Remember the brainwashing scene with karl had the voice in the background that said..."only fools are enslaved by time and space." Also, when you read the whisper transcripts it would seem that there may be others like Jacob on the island. Present, yet invisible to the inhabitants..... except for a few whispers.