OP, I understand your logic in putting density on the Island, but I think there's much more gain in keeping it a park instead. All it needs is better mobility, and it can become the Central Park of Toronto.
I'd propose this mobility as links up the straights to Bathurst in the West and Portlands in the East, using LRT bridges that would join up with the Queen's Quay West and Cherry LRTs. These bridges would carry LRTs, which would run in ROWs all across the island, giving people mobility to and through the island. The bridges would also have a bike section, and a large pedestrian section. But for those to work, the Airport and Portlands would need to get redeveloped, the Airport into more of a park area, and Portlands into the pedestrian-friendly residential area it is slated to be. Those LRTs would be a significant travel time improvement to the island, and would be able to provide year-round travel to the island. That starts to open up your possibilities.
Aside from the mobility issue, there's really just a bunch of small things that could make the island nicer. Some general landscaping: better kept grass, more aesthetically pleasing buildings and paths, bigger variety in trees, etc. I think there's also some possibilities for some more stores, namely some restaurants and possibly some cafes. I think beachside restaurants would be a good draw, and some cafes at either end of the island on the LRT roads, to give people some place to go quickly (a CBD worker's lunch break, for example.) I think that some places could have some residential buildings, like one or two small streets with 3/4 story shop-apartments. I think as a street just off a LRT, it'd be good in a couple ways. Firstly, it helps maximize the amount of people that can live a relatively secluded, rural-feeling city life, assuming it keeps with the aesthetics. It'd also mean that there's always going to be someone there, which could make it feel less deserted. When I imagine this, I'm thinking the main street of some small European town in the middle of a forest, but as long as the aesthetics make it feel isolated, it'd work fine.
As for where the other density will go, there's Portlands sitting right next to the islands, which are just as unused and lifeless as the island is, which is a lie because the island actually gets tonnes of use, while the Portlands are basically grass lots doing nothing. I don't think Portlands should be getting really high density though, more of a slew of mid-rise condos. High density wouldn't work there. I think that in terms of a waterfront areas, high rises would work the best either on the Leslie Spit or lining Humber Bay. Leslie spit could be interesting, with maybe some reserved parkland near the middle of the spit, with tall skyscrapers at the end.
The waterfront's definitely an interesting place for the future of the city, but I think it'd be better if it all built around a Toronto Island park instead of residential community. The biggest thing I can think of is those two bridges and LRT, supported by nicer areas in the Portlands and Toronto Airport.
