First, some background:
The EM generator in what was (*SPOILER*) formerly the swan hatch was considerably strong. (enough to pull down a plane) This field can be blamed for two troubles the losties have.
1)It can be the cause of changing the magnetic poles. (i.e. showing that north on a compass might not really be north)
2)It COULD be used as a cloaking device for the island, bending light rays around it so it can't be seen. (no research proving this yet)
But, the reason I think the EM generator is there is for an RF shield. Read this wiki article.
The article states that RF shield is made when electric & magnetic fields are coupled. This shield can be used to direct away electromagnetic radiation (or possibly other types of waves). It also quotes "Any holes in the shield force current to flow around them, so that fields passing through the holes do not excite opposing electromagnetic fields. These effects reduce the field-reflecting capability of the shield." This could be why (*SPOILER*) Henry Gale told Michael to sail towards 325 degrees on his compass.
Now, my theory:
THF is going to inhabit the island (possibly another), set up the shield and protect themselves from the radiation emitted from the "inevitable" nuclear apocalypse.
Also, THF finally finished the Valenzetti equation and realized apocalypse is coming very quickly. (Hence the fire.) They then decided the other islands were not prepared for the armageddon and resorted to go back to the Lost Island to survive.
Feel free to disagree,