Hmm... I think I remember seeing this game before. The moment I saw the FMV with the guard arguing with the other guy about the ammo it gave me a deja vu. Maybe it was one of those games I saw someone else play at a brief glance and it became buried deep in my memory.
Anyway, the way this game progression is designed reminds me of Hexen. Although, at least in Hexen there was teleporters and shortcuts you could open, so you don't need to backtrack that much.
As for you being confused about the way time was frozen in the island, think it more like everything stopped aging rather than a literal timestop. An example I could think of my head is the pocket dimension inhabited by Death in Diskworld lore. You could tecnically become immortal if you lived there alongside Death (like Albert, Death's manservant), but that's because the hourglass that measures how much time you have left to live pauses when you step on that realm.
Considering Tess's plan was about being young and beautiful forever, I think that's what sort of what happened to the isle. Time still passes, but it does not progress or end.