I can't see your pix. You need to post them via photobucket or some other photo sharing site.

Try putting your pix on Imgur or Tinypic and then linking them from here.

I'm always a big fan of light grey grout with white tile, especially if you're going for a more vintage look. It's easier to clean, too, and it sounds like it will harmonize with your gray walls. I used Laticrete's Silver Shadow epoxy grout for my bathroom white subway tile wainscoting, and love it.

Looking forward to your pictures!

Thanks for responding, hope this link works!

http://s1270.photobucket.com/albums/jj608/kleeraden/

Not to be picky, but do you mean "peninsula" rather than "island"? It looks like that is a DW between the cabinet run and what I think is a peninsula. My gut says no tile if it were an island, and yes, tile it, if it is a peninsula.

Here are your pics:

I think you should extend the backsplash out to the peninsula. If you google kitchenaddict's kitchen on gardenweb, she has an area where she extended the backsplash out in a similar way. KA- hope you don't mind me referencing your beautiful kitchen:)

What does your backsplash tile, granite, and floor look like? Keep in mind you will need trim pieces. Some subway tiles also have bullnosed edges on one side as trim pieces. Or you can do a tumbled stone which has a nice edge so you don't need trim pieces (like in kitchenaddict's kitchen).

I basically agree with janealexa, but playing devil's advocate, it is hard to tell by your pictures if the end of the cabinet lines up with the inner edge of the penisula. If it does, I think ending there could look OK. It would be nice to move the socket over to get a straight line of tile.
If nothing lines up, you have to go all the way across. Could another cabinet be added to that side? It looks almost the same size space as the smaller one on the right.

I think the gray grout would like nice with the white subway tile and the gray colored walls. Here are some other pics with similar styles.

[traditional kitchen design[(https://www.houzz.com/photos/traditional-kitchen-ideas-phbr1-bp~t_709~s_2107) by seattle architect Paul Moon Design

[contemporary kitchen design[(https://www.houzz.com/photos/contemporary-kitchen-ideas-phbr1-bp~t_709~s_2103) by boston architect LDa Architecture & Interiors

[traditional kitchen design[(https://www.houzz.com/photos/traditional-kitchen-ideas-phbr1-bp~t_709~s_2107) by san francisco interior designer Amoroso Design

[kitchen design[(https://www.houzz.com/photos/kitchen-ideas-phbr0-bp~t_709) by chicago general contractor Oakley Home Builders

And I found KA's kitchen where you can get an idea of extending the backsplash to the peninsula (KA hope you don't mind me posting this!)

gray grout. A poster who used to frequent here...sabjimata has gray grout with white tile. Her kitchen is amazing.

Here is a link that might be useful: great kitchen

Wow, this is such a helpful forum. Thanks to all for your advice and pictures.

Sorry, It is a peninsula and I think we most likely will extend it to the end like kitchenaddict. I'll double check tomorrow re the electrical outlet, hard to tell if it is in the middle or lateral to the split between the cabinets and peninsula.

Janealexa-we're doing white subway (leaning towards light grey grout), silestone cemento (concrete like) counter and our floors are oak.