There should be an Island for each type of dragon. For example Cloud Island for cloud dragons and sunlight Island for sunlight dragons. there needs to be more types of decorations that fit the theme of each island.

Okay now you're making no sense. There are over 1200 dragons, and you want them all to have their own island???
You must be a new player.

Each dragon has different elements, and they place into habitats with those elements, you can choose which.
There are 12 - 15 islands to place habitats on however you wish. I myself have nearly each island devoted to one type of habitat. That might be the closest you can get to your idea.