This is a tough vote. I think he is definitely mentally incapacitated to some degree, but I don't think I would go so far as to call it "catatonic" or "fried." I voted that he's working in a station somewhere, but I'm not sure if it's a Dharma station or an Other station. (dun-dun-DUN) And I think he's got mental issues.
I think I should've voted "something else."

Edit: And I just thought of another possibility -- off-island, building the Foucault Pendulum station (what was it? the Lamppost?) Yeah, I'm liking that better... Plus, that covers all the options in the poll: Working
in on a station; Off island via... (who cares how?); all the while being
Catatonic/mentally fried. Just not dead.

Yup, that's it.
Yay Madam P the exact same thought came to me the other night (lol I love the way you put it!

)- that he is the one who built the Lamppost station. When Ms Hawking said that a clever man had designed it I thought of Daniel, but at the time they weren't in the right time period and I dismissed it. The only trouble with this theory is that I checked the transcripts and -
ELOISE: The DHARMA Initiative called it the Lamp Post. This is how they found the island. - so the Lamp Post must have already been built by the time Dharma were on the island as it was how they found the island?! I checked a bit further on in the transcript and this is the rest of what was said about the Lamp Post -
JACK: [To Ben] Did you know about this place?
BEN: No. No, I didn't.
JACK: [To Eloise] Is he telling the truth?
ELOISE: [Chuckling] Probably not.
[Eloise opens a drawer and pulls out a binder.]
ELOISE: Aha. Here we go.
[Jack inspects the photograph on the chalk board. It looks like The Island. The bottom of the photograph reads "9/23/54 - U.S. ARMY - OP 264 - TOP SECRET - EYES ONLY"]
ELOISE: [Sighs] All right. I apologize if this is confusing, but... [To Jack, who is still staring at the photo] Let's pay attention, yes? The room we're standing in was constructed years ago over a unique pocket of electromagnetic energy. That energy connects to similar pockets all over the world. The people who built this room, however, were only interested in one.
SUN: The Island.
ELOISE: Yes. The island. They'd gathered proof that it existed. They knew it was out there somewhere, but they just couldn't find it. Then a very clever fellow built this pendulum on the theoretical notion that they should stop looking for where the island was supposed to be and start looking for where it was going to be.
[Pendulum whooshes]
JACK: What do you mean, "Where it was going to be"?
ELOISE: Well, this fellow presumed, and correctly, as it turned out, that the Island was always moving. Why do you think you were never rescued? Now while the movements of the Island seem random, this man and his team created a series of equations which tell us, with a high degree of probability, where it is going to be at a certain point... in time. Windows, as it were, that while open, provide a route back. Unfortunately, these windows don't stay open for very long. Yours closes... in 36 hours. [She hands the binder to Jack]
So it was a group of Dharma people who built the station. I wonder if the clever fellow who built the pendulum is Daniel's father? I'm just trying to see how Eloise Hawking went from island native/Other to being off island and knowing all this about how Dharma found the island AND where she was when she had Daniel? Maybe she defected to Dharma at some point (when she met Dan's Dad?) and then went back to the Others?
Anyway back to the question! I think that Dan has been off the island for most of the 3 years, not building the Lamp Post, but he might well be there using it! Also I'm pretty sure he would have found his Mother and maybe his Dad to help out! I think he'll be coming back to the island soon though, hopefully by the finale!
What I don't understand is how come is the island was always moving why the had to move it using the FDW? That's another thread however!