How would Locke know Michael was either alive or dead? If anything, he would think Michael was dead since he knew he was Ben's man on the freighter and that the freighter had exploded.
Christian said to Michael, "You can go now." He was telling him that the island will let him die, where before it was keeping him alive. My bet is Michael is dead, dead, dead. And so is Jin.
I'm pretty sure they weren't freshly killed. I can't remember the context on the show (maybe Tom in NYC with Michael?) but there was a photo of a graveyard emptied of it's bodies somewhere in the Far East (Thailand?) that was the explanation for the bodies on the plane.
To answer your final question, no. The island is required for time travel (if that's in fact what is happening). Widmore is looking for access to the island. Without it he has no way of sending mercenaries back in time.
Is this the first time we've have a flashback of a dead person? Naomi's flashback with the Oceanic lawyer occurred long after she was dead. I don't recall that happening before. There is a definite "formula" to the flashbacks -- we see a person in the "present" on the island, flashback to their...