GREAT episode. About 2/3 of the way through the movie, I guessed that Jo was the ghost of Alex's dead wife and I was afraid to say anything because that just seemed too bananas, but lo and behold....
Then I got to thinking. What if there's something much more tragic at play? What if what's really going on is that Katie/Erin ALSO has a cancer and the tumor in her brain is causing these hallucinations of Jo? It's entirely possible that when Katie/Erin first rolled into town, she caught a glimpse of an old photo with Jo in it (I don't know, somewhere in the background of Alex's convenience store?), and her crazy brain tumor is drawing this image from her subconscious and projecting it as a hallucination?
Just sayin'...