When I first made this post I thought that it wasn't exactly specified whether or not Jenka created the island, or whether or not she made it start floating, or whether or not she and Ballos and the kingdom were already on it. But here's a little something I noticed when looking back upon what it specifically says. Read them carefully, multiple times perhaps...
The Aeon Genesis translation said:
Jenka, seeing her brother's madness, confined him to this floating island. That was the most she could do. Even as he was, she could not bring herself to kill her own brother...
The NICALiS Translation said:
Driven insane by his punishment, Ballos was confined to the floating island in the sky by his sister, Jenka. That was all she could do. For Jenka, killing her own younger brother would be impossible.
So, in the most literal sense, Jenka "confined him to this floating island", or Ballos "was confined to the floating island in the sky". So it isn't definite, but it does give a slight implication that it may have already been in the sky before Jenka confined him to it. I suppose it doesn't altogether eliminate the possibility that the kingdom was already on the island (perhaps the King's throne is the throne room where the idle Demon Crown dwells...). However, this isn't a super strong implication, just a mild one. Before I made this post, I didn't realize these somewhat noticeable implications, and have sided with what Sold said with Jenka raising the island. But upon further inspection, I'm going to take these implications seriously, and change back to my original belief that I held the first six months after playing Cave Story that the Kingdom took place somewhere on the surface, and that Jenka teleported and confined Ballos from there, to the island that was already in the sky. Back to the theory above of the throne room being from the kingdom, perhaps the kingdom wasn't originally on the island, but that part of it, along with Ballos, got teleported there when Jenka confined him there. So many possibilities.