No, Vvardenfall is still there, it's just covered by a bunch of lava and ash. The Ministry of Truth decimated Vivec City, and possibly took out a good chunk of Vvardenfall and southern Morrowind. The impact triggered Red Mountain to erupt, which completely covered Vvardenfall in lava and ash. In the book, it's described as looking like another realm of Oblivion, it looks like an unearthly wasteland. Nothing survived, but the island is still there.