WELL. Two necro bumps in one day! Huzzah?
The thread I linked to didn't get really get into the creation of the Island, and now I have a theory. It's all wild speculation, but it makes sense. I thought it up while I was writing some lyrics for
Toroko's Song, so that the whole subject of the song makes sense.
There was an ancient civilization of philosophers, magicians and scientists. They are the Good Guys, although this isn't necessarily a struggle between good and evil. The Good Guys were prosperous, they built many beautiful things, and they lived peacefully with the Mimigas.
As incongruous with their nature as it might seem, they were also religious. A shrine was built around a holy site, where they believed that the Goddess first bestowed magic upon the humans. They constructed a tall, beautiful tower, and other, shorter buildings nestled in its shadow. They protected the shrine with enchantments, to make it last for ages. Below the shrine were catacombs, filled with sand for some reason. I don't know. Maybe these people really liked sand.
Anyway, the Good Guys' religion revered frogs. Perhaps they are magic as well. It is a mystery. All we know is that the monks living at the shrine wore frog-like robes. (And they feasted on mortal souls?)
There was no city built around the shrine; it sat on green, rolling hills where the Mimigas lived. The Mimigas made their homes underground, but walked aboveground like the humans. They were not subterrainean creatures. So the Mimigas were friendly to the monks and the pilgrims, and even traded when possible. The Good Guys and the Mimigas were happy. On average, I suppose.
But of course, you can't have Good Guys without Bad Guys. The Bad Guys were a nation of warriors and conquerors, and they also possessed magic. Since they focused their magery on destruction and death, the Good Guys could not defend themselves sufficiently, and realized their downfall was inevitable after a few months of war.
The Bad Guys had no respect for the Good Guys' religion, and they burned and razed all monuments and places of prayer. Learning of this, it was decided by the Good Guys that the only way to save the shrine and the holy ground it rested upon was to keep it out of the Bad Guys' reach. All the most powerful magicians were summoned to the shrine, to lift it off the ground and send it traveling amongst the clouds, closer to the Goddess and away from harm, while the cities below it burned.
The Mimigas had never bothered with human conflicts and politics, but they understood that the Bad Guys would certainly try to wipe them all out, because bad guys tend to be dicks. So they asked the Good Guys if they could live on the floating ground. It didn't seem at all fair that they should be killed because of the humans' war. Obviously, the Good Guys didn't think it was fair they should die either, but Mimigas were rather ethnocentric, I suppose.
So the Mimigas made their tunnels in the ground below the shrine, and the land was magicked into the air, where it would float until... well, you know.
What the Mimigas and Cthulhu didn't count on is the difficulty of living at high altitudes. The monks refused to let Mimigas live in their quarters (they are holy buildings), and the outside of the Island is cold, windy and dry. The Mimigas moved underground, where there was food, water and grass for some reason. After a few generations, they avoided the exterior altogether. The Cthulhu also go underground, but take care of the shrine whenever no one's using as a base for world domination.
What became of the other humans, though?
The Good Guys were wiped out, all their knowledge and architecture forgotten and destroyed. The Bad Guys instated their kingdom, although you can hardly call the entire race Bad because they wanted to take things over. For instance, Ballos was a kind soul. Too bad the king was a dick. You all know Ballos's story (and if you don't, finish the god damn game, you pussy). Jenka was the most powerful magician in the Kingdom, so she was able to transport Ballos and the Core to the Island. Pretty straightforward.
So that's how the Island came into being, and why the Mimigas, Cthulhu and an entire zone made of sand are there.