beatnik,
Islander is showing you the correct answer. The pressure altitude would be 630'. This is lower than the actual altitude, giving you slightly better performance due to the, as you correctly deduce, higher than standard pressure and thus lower density altitude.
The other calculation showed 1598', which is wrong and would in fact indicate lower performance in spite of the higher than standard pressure.
I don't know where you got the 630' vs 0' from, but that's the source of your confusion. In actual fact, it is 630' vs 968'.
Rgds,
/Fred