This was a good episode. I liked the flashbacks being of the events leading up to the island, instead of more island stuff. Its interesting to see Walter back, although I wonder what Merlyn is going to do about it. He was holding Walter for a reason.
I liked the Ted Kord reference, and the mention of Markov. I'm guessing merlyn's way of making a disaster will be with a device that causes earthquakes, or something similar. I can't wait to see what happens in the last two episodes of the season.