I'm sure that this world, just as our own, has tectonic plates, a lot can change in 1000 years, Zanarkand could've attached and become that peninsula. I don't recall them ever saying that it was a model of Zanarkand untouched by the war. It were the fayth that created it though, and they didn't necessarily survive the war since they are now only spirits. Plus, Yu Yevon is only the cretor of Sin, not the dream Zanarkand.