BA have exactly the same problem on comparable aircraft routes. They have a more generous baggage policy and it takes an age. Try a morning full A320 CDG-LHR now that they charge extra for bags.
M-JCS. I used to fly with them weekly to commute. People getting on bags which don't fit inside the gauges is fairly rare. It's not fraud though, I can promise you that. The problem is that people think there's room for everyone to have a full size roll on, their coat and airport shopping in the over heads. People won't put things under the seat in front as their legroom is more important on a 40 minute hop than everyone getting their bag with them in the cabin.
People whinge about easyJet baggage problems. Remind me, how much did Manx2bobAirways allow in the cabin?
What makes the IOM so special that it is above LCCs? It has one semi full service flight to LCY. Everything else is LCC style, like most UK mainland locations are. IOM does very well for a place of its size.