Island is a fun word. Even more fun is isle. How often do you have a silent 's'? How did it come about?
Island appears to come from the Middle English iland, from the Old English igland. Dictionary.com says that the 's' comes from "association with isle", and that isle comes from the Latin insula (meaning island) through Old French. Merriam-webster.com confirms that isle comes from "Anglo-French" and ultimately from Latin. The modern day word insulate clearly comes from insula, so that we can say that insulate literally means "to make an isle of (something)".
So island comes from Old English, whereas isle comes from Latin. We would be wrong, perhaps, to say that insulate means "to make an island of (something)" because island doesn't come from insula. Huh. I had assumed that island and isle had the same derivation and that isle was simply a shortened form or something. Instead it appears that they have very different origins but that once they both made it into English their spellings converged.
A note: I had assumed that island and isle had identical meanings, but the two dictionary sites mentioned above both suggest that isle often connotes a small island. Thinking about it, perhaps this is right. Also, both sites claim that each word can be used as a verb (meaning, as you might expect, "to make into or place onto an isle/island").