Whichever way you look at it, the island line needs significant expenditure during the next 5-10 years for track, signalling etc. Is it worth updating the existing infrastructure or to spend the money converting the track to enable trams. It might require some more investigation as to which would be more beneficial in the long term.
It would probably make sense to go to a tram based system, so that is allows the possibility to extensions in the future, but that isn't for another 10 years plus.
In the short term, I would suggest that the powers that be decide whether its trains or trams, and once decided, purchase some made to design trains or trams specifically for the island line, and upgrade existing power supplies.
Also introduce the loop at Brading. This would allow trains to pass at Brading and allows for 1 unit to spend 20 minutes between Shanklin and Brading, plus 10 minute wait at Shanklin.
The other unit would spend 14 minutes to get between Brading and Ryde Pier. On arrival at Ryde Pier, another unit could depart 2 minutes later, allowing sufficient time to pass with the train from Shanklin at Brading.
This would make the loop at Sandown unnecessary - save money and move that loop to Brading?
The unit waiting over at Ryde Pier could do a return trip to St Johns to allow a 15 minute service between St Johns and the Pier.
The only problem with the above is that 2/3 platforms would still be required at St Johns. It would be good to see the steam train link up at St Johns, as that would be much better than the current situation with Smallbrook Junction. One potential solution would be to use some of the waste land at the back of the St Johns station car park, but not sure if there is sufficient room?