(New Upload: 09/09/10. Fixes: I have re-shaped the terrain with some small cliffs. I know it doesn't look good, but anyways...) The entire view now.

That small island north of your main-island, which is made by the hill-tool, looks very good, though it should have some palms. Ussually if I make such terrains, I make the whole island this way as you did with the small northern island. Though, you will have to restart the whole map if you should do so now, so instead, I think you should try testing the lower ground-tool, which does the opposite of the hill-tool. Try use it at the southern part, where the walkable water is below the beach, because it doesn't look good, that the water ends so suddenly.