You haven't crossed the biggest hurdle for Merlin to put them in there. What was someone from medieval England doing building demon prisons in Chicago to put Gods and Monsters in? Even the Norse didn't get that far inland. And it was a Connecticut Yankee in King Arthur's Court not Harry.
Ericsson did not know about Ways. Merlin likely did. And once wizards knew of Ways.. only reasonable some of them would have explored the Ways. Human nature. Merlin wanted somewhere remote. He may have looked for a Genius Loci - I like Arith's idea the prison lifted him above most Loci and gave him intellectus. Maybe like Harry seems to lift Toot. Anyway, there is a Way to the island - when Harry invited the Senior Council, people were gating in on the far side. Plus the Gatekeeper knew one. If Merlin decided he needed a jail, and could time travel, why not go back and build it in the past, so it can be ready in his own day? If he needed one in 1200, why not go back to 500 and build it, so it is waiting. So a relatively sparsely populated area. An island in the middle of one of the largest lakes in the world. A genius Loci to develop into a jailer. Just fits.