How important is historical and geographical accuracy?

Ask yourself: "Will name-dropping Krakatoa help my game?"

If you don't plan on selling it, obviously the name doesn't make a difference. If you do plan on selling it, then you ought to come correct. The amount of backlash you've already received for the name but lack of historical accuracy should be a clue that something doesn't match up. Should your game garner online reviews, I suspect the lack of historical accuracy can mostly be seen as a negative unless you "spin it" differently.

To increase your chances of success in publishing (or at least having people buy your game), I recommend you consider one of the following options:
- Develop a fantastical/made-up name for you volcanic island
- Do more historical and geographical research to more closely align your game to the historical account of the volcanic eruption at Krakatoa
- Increase the humor, reduce the seriousness of the game

The third option is likely the most drastic and would put the most strain on the game as it is now. It would be like saying the Titanic had been sunk not by an iceberg impact, but by cybernetic squids. The second is likely what you will do to keep the name intact and resist criticism for lacking historical accuracy. The first option seems the easiest, since it doesn't seem like your game really needs the name Krakatoa to be successful. Technological/historical/ecological issues can be ignored if you go the first route as well.

As always, the choice is yours. But I recommend you only hang on to the name "Krakatoa" if it's best for the game - not just because you personally like it. As you describe it right now, it doesn't seem that there will be a net positive for using that specific name for your project.

I feel that your title is a liability more than an assset for several reasons. The inaccuracies in your game feel trivial because you are far removed from the setting, both in time and space. Imagine instead a game set in the jungles of 1980s Sweden that features tiger attacks and tablet computers. The discrepancies are comparable but far more apparent. Fictional settings eliminate our inherent tendencies toward chauvinism, which is why errors about foreign lands seem so unimportant.

Depends who you're trying to sell the game to. People look at the title and art and form expectations from that, if the actual experience doesn't match the expectations it's a disappointment.

Tie it to something real (as you have) and some of the people who find it appealing are going to be people who actually know the real facts about. When they look closer and find it doesn't come even close to reality, they're let down. You've told them you're giving them A+B, but they find they're just getting A.

Call it "Volcano blow up disaster" and no-one will expect historical accuracy so no-one will care about realism. They'll just expect something exciting but not particularly thematic.
(and of course, fail to follow through on the exciting with a title like that and your game will tank because that's all you've got...)

Reality doesn't bend itself to fit with game mechanics, it is always the opposite.

Buying a game because the facts are inaccurate is almost never a deal breaker and if it is, the number of people that do are scant and probably don't buy games.

I wouldn't worry too much about "facts". It's all about perceived reality.

The simplest solution is that the island sunk, rose again years later, and bears a scientific treasure trove with an extraordinary ecosystem. Explore, gather, but the ominous rumblings suggest that the island will sink again. Instant fantasy version.