The water will only go away if you add landclass tiles.
George, are you confusing the island's ground capabilities vs. the exclusionary action?
Here is a simple water exclusion, sitting just off the coast of Georgia (?? I got lost on my way to Jacksonville). and the BGL file. This area sits just over three miles south of 2SC3.
The screen capture shows the area in Virtual Bing Earth, with the LOD 11 grid active for display. Go to the approx area of 32.08 x -80.85 and you'll see the squareish block of land now showing, which fills the entire LOD boundary area with land, instead of the FSX water, coastlines, etc.
Then the water would need to be added back into FSX with a polygon drawn in SBuilderX that overlaps the four corners of the LOD=11 boundary that holds the water exclusion.
Jim, try the BGL in the zip file and see if you have the squarish block sitting on the coast just over three miles south of 2SC3. If so, then to add the water back make a new polygon in SBX overlapping the LOD=11 boundary. Compile and check in-sim. If you get a squarish water block added where the squarish land block used to be, you're at the point to where the island can be cut out.
But and you'll have to excuse me for sounding direct, I'm running short of time, as I have a release to get out, hopefully by tomorrow? If the terms used are confusing, you need to spend more time understanding, rather than just saying it doesn't work. You say you excluded the Hydro Polys? The only hydro polys in SBuilderX are for the GPS. When I made my exclusion I selected the Exclude_All_Water_Polygons tag. If you ask for assistance, please supply adequate information on what you're doing, so that someone might offer some guidance. Scott asked a question above. He's knowledgable and helpful to people. He got no answer.