Question 1: Is it possible for the game to end in a draw?
Possible (maybe unlikely) scenario: Blue team's sub is on 1HP at C4 and Yellow Sub is on 2HP at D4. Both subs hypothetically know where each other are. Firing a torpedo at E4, while avoiding self-destruction, won't be enough to kill off the enemy team. Blue captain also knows Yellow's torpedo is almost ready and fears if he delays any longer the yellow sub will shoot him. He decides to fire a torpedo at D4, and both subs sink together forcing a draw.
I've never seen this, but yes, it could happen.
Question 2: For the sake of say, detection, could torpedoes or mines be launched at islands? Logically, this would not make sense but just wanted to be sure
No, you can't.
Question 3: The rules on page 6 top left corner say that "When all spaces on a gauge are marked, the First Mate announces it to the Captain". Page 3 specifies he announces it "loudly and clearly". Does this mean the enemy sub should be able to hear the "system ready" announcements?
If they have time to listen, yes, they will know which systems are available.
Question 4: Both the "activating silence" and "scenario" system are colour-coded purple in the rulebook. On the first mate's sheet, it is yellow. On the engineer's sheet, it is both yellow and purple. Am a little curious why there is this distinction, since both red and green are consistent and easier to mentally process.
The correct color should be yellow-purple. Some of the examples in the rulebook use a slightly older version of the iconography. This should be fixed.