This movie feels like it's really just an extremely long filler episode...but not in a bad way. There aren't many parts which made me facepalm or shake my head at inconsistencies, and is a huge step up from the third movie.
Not that it's without faults, but it's entertaining enough to watch again.
Plot
The mysterious island, Hourai, only appears once every fifty years. A group of kids are seen unable to leave the island with the exception of the youngest, who meets up with Inuyasha and the group.
Inuyasha had come across the ones who had prevented the children from leaving the island before (50 yeares ago with Kikyo), and thus agrees to go to the island.
In the meantime, the four youkai/demons responsible for the terror on the island, the four War Gods, are still bent on getting their powers back, and will stop at nothing to do so.
Characters
Besides the protagonists, there are the remaining survivors of the island; six children (three boys and three girls). They all play a small role, but the main ones are Ai (the youngest who escaped the island and brought Inuyasha et co back), Asagi, and Shion.
There are the antagonists, the four War Gods, whose powers are obviously modeled after the Four Guardians (Turtle, Tiger, Dragon, Phoenix). They appear to be the typical "fight for the sake of killing" youkai.
Sesshoumaru makes an appearance in the movie as well.
Overall
For a movie which feels like a long filler episode, it was far more enjoyable than the third movie, and is actually quite interesting. There are other half-demons involved in the plot, which makes it more intriguing, and everyone gets to do something (even Shippo).
The fight scenes are, unfortunately, rather dull. The most interesting fight was the first fight in the beginning between Inuyasha's group and Gora (the Turtle demon), and then the fight later on between Sango, Miroku, and Gora.
There might be slight SPOILERS ahead, as I'm going to get into some of the oddities.
The final battle rehashes the teamwork between Kagome and Inuyasha from the first movie, so though it's still cool, it doesn't have the same impact. There's also an inconsistency in the final battle, where Inuyasha uses the Bakuryuha (Backlash Wave) but there's no visible source of youki which he's countering.
To be honest, the movie's lackluster battle scenes don't bring it down too much, as the focus is on the children and their plight on the island, as well as them overcoming their fears. Of course, better fight scenes would have been nicer to see.
Another inconstancy in the movie occurs when the children are near a sacrificial cauldron, and a horde of poisonous insects start to swarm towards them. Miroku opens the Kazaana, but is told to close it because the creatures are poisonous.
From what I've seen and recall in the series, the only poisonous insect which can actually affect the Kazaana are the Saimyoushou (the bees). Miroku also has a very high tolerance for sucking in miasma and toxins, and has never had any other trouble (except for during part of The Final Act) sucking in any poisonous youkai.
The next issue is more of an inconsistency in the movie itself, with the fight with Gora in the beginning. Everyone declares Gora to be dead, yet when the climax hits and the War Gods get their powers back, it somehow revives the youkai. I'm sorry, but I have to call shenanigans on that. There's no special sword or shikon shards involved, so though Gora's power crystal was released, if he was truly dead, he should have stayed dead.
Another inconsistency within the movie is the "mark of the War Gods", which are four slashes on a character's back (one for each living War God), which somehow ties them to the island as a curse. Inuyasha was slashed 50 years ago when he and Kikyo stumbled upon the island, yet he was able to leave the island at the time.
Perhaps it was because they were in the water rather than on the soil, but it still is a major flaw.
Sesshoumaru is also an issue I have with this movie. I apologize to Sesshoumaru fans, but there was really no need for him to be in it; in fact, I believe catering to the fans is the only reason he was in the movie. One of the others could have easily done the same job he did; not to mention that 50 years ago, with what we've seen of Sesshoumaru's fighting prowess, there's no way he would have been struck from behind to get the mark of the four War Gods.
Basically, there was no reason for Sesshoumaru to be in the movie. He didn't even cross the path of the protagonists, and just sort of went in, killed one of the War Gods, and left. To me, it felt awkward, and the movie probably would have been better if they hadn't included him.
A major downer of the movie was the copy of Kikyo created on the island. As soon as Inuyasha told the audience about his first trip to the island where a creature sucked some of her blood, it was obvious what the Kikyo in the strange bubble was at the beginning, and what had happened.
I have no complaints with how long it took them to explain it, as they didn't utilize her copy until the rising action, but the copy barely did anything. Inuyasha really can't be faulted for not being able to strike the copy down (even knowing it's a copy); I've seen that trick pulled very often in other anime, where a bad guy takes on the form or face of a loved one.
In the end, Kikyo ended it rather anticlimactically. It would have been a little more interesting to see Kikyo fight her copy, though the copy used a sword while she used a bow (on the other hand, when she showed up, the copy had been disarmed).
Kikyo then drops her weapon after she berates Inuyasha for not being able to strike down a copy; this is obviously to provide Kagome with a weapon later on for the sake of the movie, but since Kikyo isn't giving Kagome the bow, and the War Gods are still running around, it seems rather stupid to drop pretty much one's only weapon.
Though her role in the movie was just as short (if not shorter) than Sesshoumaru's, it was needed to deal with the copy (as it's doubtful any of the Inuyasha group could have actually struck the copy down). The amount of time it took, however, was disappointing.
Despite all of the issues and inconsistancies, the movie was still enjoyable, and I can see myself watching it again. I did dock some points due to the things I pointed out in this section, but overall, it was merely a long filler episode which was still fun to watch; mostly for the sake of the hanyou kids in it.