Is it possible for a person to lose "Pirate Islands" Seafarers scenario before the game even starts?
This is a problem with this scenario in its current form. Sebastian Rapp, Catan's Product Manager, suggests lowering the points required to 8 since the point of this scenario is more to build ships and defeat pirates that to develop the starting island.

Your idea of being able to build on the pirate islands is another fix, possibly with the stipulation that you can only build an additional settlement on the pirate islands if it is a position that doesn't produce any resources.