Ahh Frogurt, mentioned so often in the official podcasts, but thankfully not seen in the show itself very often.
Hurley is sneaking away from a tent on the beach when he’s confronted by Neil aka ‘Frogurt’ (can’t recall why he’s called Frogurt off the top of my head though). Hurley is a little startled and drops a bottle of wine that he’s just “borrowed” from Rose and Bernard’s tent.
Neil questions Hurley about his intentions with Libby, and tells Hurley that he’s holding up the line and he should step aside an let someone else step up. Hurley reveals that the reason he has got the wine is that he’s on his way to meet up with Libby, and that “she’s bringing the blankets”…
So it’s fairly clear when this little snippet took place, it was when Hurley and Libby were getting prepared for their ‘date’, Hurley said he’d get the wine and Libby went back to the hatch to get some blankets. She got the blankets, but she also witnessed Michael shooting Ana-Lucia, and in what I think was probably a reflex action Michael shot her as well when she walked in.