Why did Icelandic begin to diverge from the Continental north Germanic languages specifically between 1050 and 1350?

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Iceland was economically isolated by its almost complete lack of trees for wood and pitch. Once the ships involved in the Landsnam operation had worn out -- this is the immigration period to which you referred -- only Norwegian-owned ships visited Iceland, and then only for occasional commerce (these visits required staying the whole winter). Through several centuries of this isolation, combined with a completely rural population distribution, it may be no surprise that mainland Scandinavian speech developed in ways that did not affect, or barely affected, Icelandic speech.

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