What is the slip factor for an induction generator in an island network?
The concept of slip is a bit misleading for variable speed wind turbines.  The type which uses an induction machine are called doubly fed induction generators (DFIGs) and their speeds are allowed to vary through the use of an AC-AC converter applied to their rotor windings.  Because there is no actual induction in these machines, the term slip might be a bit odd to use, but the value for s can still be calculated, and is negative.

For these type of generators no capacitor banks are needed to supply reactive power, as the converters can be used to control the production of reactive power from the induction machine.

A DFIG must have an AC source to run, but this does not prohibit it from being run on an island system.  Island systems are often AC systems.

I'm not really sure why permanent magnet synchronous machines would be easier to model.  For wind turbine applications these machines also use power electronics, and their rotation speed is also variable through a wide range.

If you have the SimPowerSystems toolbox then these types of generators can be modelled in Simulink

http://www.mathworks.se/help/physmod/powersys/ref/windturbinedoublyfedinductiongeneratorphasortype.html

but there are also free models which are available

http://www.ece.umn.edu/users/riaz/

Another free MATLAB tool which can be used for modelling power systems is

http://www.ece.umn.edu/users/riaz/