Ah. You've made great progress. Part of the problem is that you think naturally, the way you should and the creators of the simulator did things backwards, probably to save a few pixels or rams of mem or something. You see water and naturally you want to fill it with land to make and island. Ok, well, the truth is, in the MSFS world,
everything is land first,
then the water get's added. So, the thing you are making a hole in
is the water, to let the land show through. That's why I say, if you've gotten this far, you're doing great.
Here is an island I created for FSX, near the Philippines in the South China Sea. There was a default island in the wrong location that intersected the new island, which I had to remove. It's a little bit tricker that making an island where there's only water, but the situation should be similar to your close offshore location.
Please download it, examine the various .bgl's in SBX and TMFviewer to see how I did it. There was much trial and error, like yours, but I am pleased with the results. I think that if you compare this island to what you've already accomplished, you'll be able to see some changes to try.
https://library.avsim.net/esearch.php?CatID=fsxscen&DLID=184100