A lot of the theories I've seen so far dwell on the AU-London theory, and a lot of things point to that. But here's what I'm thinking: The city was buried 400 years ago. Hoenheim's letter to Dante was written, taa-daa, 400 years ago. Anyone think that Hoenheim may have had something to do with flattening the city? Also, something I noticed a while ago was that in the flashback to Ed's dad creating the stone, people's clothes seemed not 400 years out of date, but very similar to those in Ed and Al's own time, not to mention Hoenheim's inability to recall just who Winry was or the date. To me, this points to a sort of time loop.
Here goes: There's a war on, plague is spreading. Hoenheim is an alchemist trying to help the people. In a last-ditch effort to stop the plague, he and Dante use those who are nearly dead already to create the philosopher's stone. However, it goes wrong and Dante uses Edward v 0.1 (as someone else put it) to house Hoenheim's soul. Hoenheim is likely too weak to do much at this time, so Dante seals the city to hide what they've done. Flash forward through time as they switch bodies as the old ones rot away, until we come to the time Hoenheim left Trisha to find a cure for himself. In doing something, he somehow goes through the gate and finds this preserved world exactly as it was when it was sealed, all the lives from the philosopher's stone caught in a loop from the last day (or few days) before the phil. stone was formed, the city caught in a war long over. He returns to the real world comletely oblivious as to how much time has passed, because it's always the same time behind the gate.
This could apply to different areas as well- If Dante had opened the gate in Ishvar or Liore, those who went through the gate would likely be stuck living those last few days as well.
The only thing that it would serve is if there was some way to break the loop...