haha it took me over a year to understand it:
Donnie escaped his death, or "God's path" which creates a tangent universe in which weird shit happens. He has become the Living Reciever; his job is to trigger a chain of events that lead to the artifact (jet engine) being returned back to the primary universe.
Frank and Gretchan were manipulated dead; their job was to manipulate Donnie into doing things that would make him return the jet engine.
Everyone else was a Manipulated Living, they do crazy things that normally wouldn't occur in the primary universe.
When Donnie has safely returned the artifact (engine), the tangent universe is safely guided back to the primary universe. If this task had not been completed, the two timelines would have strayed off of each other, and there would not be enough energy to support both universes, and they would collapse into a black hole in 28 days and all live and space would vanish.
Donnie does not have to die in the end. The reason is interpereted in many various ways. It was Richard Kelly's idea to make certain concepts of the movie open-ended.
(heres how I know he didnt have to die: in the first scene, donnie is riding his bike back to his house. Frank drives by in his red car! Donnie's sister is dating frank. In the begining, when she comes home late at night, you hear Frank honk his horn, and drive away. In the end, when the two universes have been linked together and she comes how late "again", Frank honks his horn, but DOES NOT drive away. He was trying to signal Donnie to get out of bed.)
Personally I think he believe he had no reason to live anymore. Gretchan was dead, and his life's mission was completed. He no longer feared death and he wanted to see what would happen. Thats just my opinion though.
In the beginning, Frank told Donnie the world would end. Since the world only exists as far as we conciously experiance it, the world ends when you die. So the underlying question is:
Did the world really end?
Donnie died, yet the "world" went on.
Definately the best movie I have ever seen, and I highly doubt I will ever see another movie was in-depth and genious as Richard Kelly's masterful creation.