To be fair they can always move the tree within the Dream to its actual location in the physical realm as they got that wiggle room with the Dream.
Now whether you want said tree in the physical realm is anyones' guess based on the events within the Dream.
So I have never really taken the whole "It has to be on the Dragon Isles, seriously" beyond obviously finding the idea preposterous for the fact that in that situation the Night Elves would essentially be exterminated from Mainland Kalimdor/Eastern Kingdoms storywise due to the lack of interest in splinter factions beyond "Everyone's here" unity from A Plot Cinematics.