Here is what I think:

 

The Rule:

 

An Islander can never kill a non-islander, and vice versa, a non-islander can never kill an islander.

 

The definition of each is where the person is born.  I think that since the island exists "technically" in a different time period than the rest of the world, each place (the island / rest of the planet) has its own laws of nature that cannot be violated.  If the island exists technically at some point in the past (14 years) then that would explain why the children are so valuable.  It would severely disrupt the laws of nature had someone who technically had not been born yet, be killed and also explains why the women on the island are baren (those that are born islanders).

 Linus is pissed because Widmore broke the rule in tonights episode.  We really don't know where the people who were shot next to Sawyer originated from (plane or islanders?) but we do know that Ben's daughter was born on the island (according to Rousso) hence when she was killed 'directly' by a non-islander it changed the game.

 

My hypothesis:

Penny Widmore is actually an islander.  Desmond will somehow get off the island, Penny and him will reunite and Linus will kill them both.  He will then take them back to the island, but at a much much "earlier" place in time.  Their bodies will be put in the cave and that will be the 'Adam & Eve' that was discovered in the first season.