I don't know that the island fox has ever been treated as a subspecies of the grey fox. It was originally described as Vulpes littoralis in 1858 and while it has had a couple of other synonyms in the early 20th century they were always distinct from the grey fox. The island fox does have a number of subspecies in its own right of course.
You are right, the island fox is a separate species from the gray fox. The LA Zoo holds the San Clemente Island Fox (Urocyon littoralis clementae) subspecies. Unfortunately all Island Foxes in zoos are males.
Well according to my research, they were said to have descended from the gray fox some 10,000 years ago before they were trapped on the islands, thus leading to their dwarfism. See my above supplied links.