If it was me, I'd remove the island. The pond could be much deeper without it without having sides that were too steep. Liners really, really should be covered with 12+" inches of clean dirt to protect the liner from UV. exposure.
I like the clay, but if it's not available in your area then a liner is the way to go. BT Liner has the lightest, toughest liner that I have seen.
AquaArmor Liner They have a tutorial on how a liner should be installed in a pond too.