To be honest, it's more about whether there are options for larger/more efficient/faster/longer range aircraft that could use an (extended) runway that is more feasible than the 1000m in the report. The reason for asking about the Dash 7 is it's one I remember being mentioned in the past (another someone has mentioned is the Dornier-228).
As far as the age and availability of the aircraft, fair point, but the otters and S61 on the route currently aren't exactly spanking new either as far as I understand it (and at least you can get parts for the DHC aircraft now Viking have the type certificates, I am not sure you can say the same of the S61)
Utilisation? yeah would be a problem, but I don't think you would be shifting everyone in a couple of flights a week, certainly in the summer - and if the S61 stops, there are a significant number of passengers that I am not sure could be shifted with the otters and islanders even running flat out all day.
Of course, that is only looking at existing numbers, I doubt there are many that opt for the Bristol - IOS route currently as it costs 'from' £115 each way vs 'from' £60 if you fly from lands end (although £180 and £80 respectively seem more 'usual') - if there were an aircraft that could do it cheaper, maybe there would be more interest.