The Blackest Night PAC states that for figure "only characters with the block line of fire to and from this character". Does this mean that figures are the only thing to block a figure's Line of Fire or does it mean that figures are the only figures that block a figures Line of Fire?

It means that colossal figures are the only thing to block another colossal's line of fire.

If you have a Galactus, a Spectre, and Superman on the map, in this order:

G.......Sp.......Sm

Then Superman can see Spectre, Galactus can see Spectre, and Spectre can see both Galactus and Superman.

Galactus cannot see Superman, and Superman cannot see Galactus.

All terrain that would block line of fire to a normal figure also block line of fire to a colossal.

But I think the graveyard map shouldn't let colossals and giants hide in the holes. Nobody digs a grave that deep, not even the mob.

As well powers that say they block line of sight, such as Stealth.

The Graveyard map would not, because in order to be affected by the special terrain, the base must be completely inside of it. The graveyard map would not even block line of fire to the Iron Man and War Machine Duo.

I thought of that after I wrote my reply. So the only colossal that could hide in the Graveyard is Groot on his Special Power.

Why wouldn't it block LOF to Iron Man/War Machine? They are a single base character.

Yes, the entirety of the base must fit in the square
No 2x2 bases
No peanut shaped bases

Beside it still wouldn't stop Nightcrawler from "BAMFing" your figure out of the open grave or close combat attacks in general.

Ah, you are entirely correct; I was thinking Black Adam/Shazam and mentioned the other. YEah, those two buddies can hang out in a dug grave together--but it is still creepy.

If a character draws line of fire to a character that can use Stealth and that line crosses hindering terrain, the line is blocked. One exception to this is if either character has the Colossal Size ability, the line of fire is only blocked by characters with the symbol.

Compare to Captain America
According to the rules, Captain America can target a character using Stealth even when the line of fire crosses hindering terrain because his special power leaves his line of fire open except for the specified obstacles. A colossal character is only different in the obstacle specified, that is, other colossal characters.

So unless there is a colossal character blocking line of fire from Sinestro to Superman, they can see each other just fine.

You have a good read on it, but it has been ruled that the first line of the Colossal Size ability is only refering to characters. (As in characters with the and will not block LOF.) Other effects like terrain and Stealth will apply normally. Since this is something that can easily cause confusion, I mentioned it on the Player's Guide thread. Hopefully the next Player's Guide will make this more clear.