I think the first thing is the Island Line is a financial basket case, so any thoughts of brand new stock are an absolute non starter.
If you were going with trams then the logical thing would have been to re-electrify at either 750V or 1500V DC overhead, rather than leaving the conductor rail in place - and before anyone queries that, there is only one LR system in the UK which does use 3rd rail, which is the DLR. Most have gone for OHL because it enables future network expansion using on road running.
I still think battery D trains would have been the best solution here - battery tech is developing at leaps and bounds, Vivarail reckon its good for 100 miles (on a line which is 16 miles as a round trip) with a 10 minute recharge time. At a stroke it would have reduced the ongoing maintenance costs of the 3rd rail infrastructure.
Failing that sending a couple of Pacers over to the Island Line would have been good for a laugh.