Most likely in the deck collapse. Libby, in her grief and rage, either fakes crazy to get admitted to Santa Rosa Hospital so she can stalk Hurley. Or she actually does goes a little crazy in her grief and "coincidentally" (*wink wink*), in true Lost style, is commited to the same hospital as Hurley.

Maybe it was even she who initiated Hurley's visions of "Dave" in the first place! She wanted Hurley to see Dave and be haunted by him as intensely as she is. That the two men have the same name CAN'T possibly be a coincidence, right??? Fate is such an important theme in this show... I'm guessing in a future episode a photo of "Dave" will fall out of Libby's wallet, though likely not in Hurley's presence. (Unless of course, he was so guilt-ridden and out of it, that he sees the photo of the man he killed and his mind takes that face and creates "Dave" the hallucination) I have chills.

Maybe once Penny was out of the hospital she was easily talked into giving her boat away to Desmond because she was assured that doing so would harm Hurley in some way down the road? But who could have known about events that far in the future? Penny's father? The Hanso Foundation? Sun's father? Who else?

--CPPAH