Please look at my post closely. As I suggested, replacing a bad component will clear up many seemingly strange symptoms.
The high voltage is because it is a pulsating DC versus a pure DC. You probably have heard the difference between pure sine wave inverters versus modified sine wave inverters.
Your meter is reading the peak voltage. Once the Alternator output sees the battery load because you bypassed that isolator section the voltage was not only loaded down properly, it is also being filtered to resemble a pure DC voltage.
What I need to know is what the voltage is now on each battery bank at the battery terminals.
If it is not the same on both banks, pile all of the isolator wires together to bypass it completely and recheck. Both outputs from the isolator could have failed at nearly the same time. It really doesn't matter because you have already proved the isolater is bad.