There was a jail in UO. It basically was a place you were put if you got caught macroing or other lesser charges. I was there a few times for macroing lol. If I remember right there was a time limit and then you hit a gate and left or was it when you logged in next you were teleported to Brit gate. I can't remember.. I even remember macroing in jail lol. Seems no one ever checked there for offenders.
An island that no one could go to other than criminals sent there would be similar to the jail in UO. I'm not sure exactly how much players would like running around with no gear trying to evade death. I also feel there should be a point you get locked into perma criminal status. Either that or have one hell of a penalizing system to remove it. Nothing destroys a game for me more than griefers and players who take joy only in making other players upset.