Added to many of the one picture

Unclear what your renovation entails -- are you replacing your cabinets, or just removing the peninsula and appliance garage? If just the peninsula, then what is the problem with the soffit -- is there something inside it, or can it be removed and closed off? Are you asking for design advice, or technical, or...?

My sister in law is keeping her existing cabinets. I would like for her to get rid of the peninsula so that we could fit a small island in. I guess any kind of advice. We thought once we got the peninsula out adding another cabinet to the wall to the problem is the bulkhead and the corner cabinet. The wall and ceiling are plaster and the ceiling is textured which could be an issue fixing it all to match up. She is getting new countertops, flooring and are considering painting the cabinets

It's pretty hard to picture the layout well enough to see whether an island would fit. But for sure if you take off the island, you end up with an awkward end of the cabinet run on both top and bottom, where at minimum you'd need new end panels but you might need one new top and bottom unit (24" and 30", respectively, to my eyeballing) to finish straight along the wall. That might be possible if she paints all the cabinets, as you can probably get something that matches the door style close enough to blend. Make sure she snaps off the wavy wood piece over the window too, as that will shave a decade off the age of her kitchen. ;)

While you're doing that surgery, it might be worth seeing if the soffits have anything in them all the way around, because if not, she could maybe get all new upper cabinets that go to the ceiling, which would help offset the loss of cabinets at the peninsula a bit...