Wow!
  I have moorcock-ian ideas about Inselberg. and I have a group that is interested in playing Solar System.
  I am still trying to wrap my head around how to combine the existing material with Melnibone. I am thinking that the outlying islets would live a hard scrabble life, while the guys in big island fort would be a little more decadent.
  Still I have to put it together soon.

  Any ideas?

That's an interesting combination - I didn't think of Melnibone when I developed the Vadelite archipelago, but in hindsight it is an obvious inspiration for further content. Nice to hear that you like Inselburg; I haven't gotten much feedback about the book yet.

One thing that comes to mind is that maybe the island-dwellers don't have nearly the amount of say in the confederation as the text outlines. Perhaps the representatives they send to Inselburg get suborned as a matter of course by the decadent smugness of the fortress. Maybe those with a backbone are lured or tricked into secret societies or cults that blackmail them to exercise a strong block vote in the matters of the islands. I hint at this in the text - the religious freedom of the isles combined with their cultural technology is likely to lead to explicit political segmentation in time. Maybe a man sent by a village to the fortress as a representative comes back after seven years, his eyes empty and in knowledge of oaths that will destroy him and his family if he would ever tell the naive fishers and craftsmen of his home the truth. Maybe the rustic islanders are paid with nails and baubles they receive gratefully, while the merchant consortiums of Inselburg keep all the gold and silver flowing from mainland trade to themselves.

Maybe the high executive of the Vadelite confederacy, the Prefecture, is completely suborned by decadent Ammenite mystery cults. Perhaps the relatively public Skyfire Cult is actually a sorry opposition to elven Magisters that grow their Collegiums like a spider grows its web, fighting for room on the isles. The Black Fleet is beached not because of unwillingness to wield it, but because one half of the Congress are permanent residents of the Poiture Plane while the rest are all members of fractitious collegiums that can't agree on anything. All this suits the Ammenite Houses quite well as they plot and build their octeres, large warships of near two thousand rowers. Perhaps one day they will humble the Black Fleet in its home, even as the Congress of Inselburg sleeps the fevered dreams of Poiture. In this future even the Horned Consortium could be heroes, for theirs is a dynamism ill-suited for impotent scrabbling and lazy dreams.

Elves of Near are already practically Melniboneans, so you'd get a lot of the same dynamism by simply assuming that all Magisters of Inselburg are elven.

Eero,
  Yeah, I was thinking something like that.
  I was talking to a friend about Elric last night and he hadn't ready any. As I was explaining the original books, an idea came to me.
  I love political conflict, and the problem with Inselberg is, it is so isolationist that there is not a real engine for political intrigue with external forces. What I mean is there is not a lot of fuel for some sort of Inselberg/Ameni conflict.
  But, there is great potential to cast the Island fortress as Melnibone and the outlying islets as the young kingdoms.
  So, the idea I had was to cast the inner core (maybe descendants of the old admiralty) of the main fortress as melnibonians and use the Collegiums and the potential for captaincy as a way to manipulate the representatives (sort of like the young kingdoms that cooperated with Melnibone in the novels). And the outlying islets are the future of Inselberg, not decadent, innovating, adapting and still interacting with the ever changing world.

  I think the impetus for this is to introduce a new element to the setting. Maybe a coup or at least a charismatic leader that is rallying the bored leaders of the fortress around his banner. sort of a Yrkoon-like character.

  I am still mulling it over. So, thoughts and/or additions are appreciated.

After reading up on the races again, I decided the inner circle of the admiralty will be Goblins.
They have the kind of decadence and hedonism that fits the melnibonian nobility.
  I am still fleshing out what I want to have in the setting, but this is a big break through.

Ha, goblins should work quite well. Much of the rest will depend on the particulars of the player characters; I could see outsiders and insiders in different varieties, and their stories would become quite different in emphasis.

I almost want to cast the Pere de Fey as the Lost/Ancient Gods that the Melnibonian magic leverages.
It totally reboots the established setting, but it also works on so many levels...

OK, so after going back over the list of characters in the various Elric Series, I totally see the outlying Inselberg islands as Young Kingdoms. And the Fortress as Melnibone. I have better idea for the various internal conflicts in Inselberg Politics and the Collegium system works real well for a good analog for Melnibonian magic.
  I am going to go check out Stormbringer.net or something and cook up some names/factions, etc. so I don't forget any of the fun parts of those novels.
  I am thinking of having the Yrkoon-type figure be named Arioch so that no one gets the idea that there are gods at work here...

Ooh,
  I am still researching, but I just had a brainwave.
  Instead of casting the Pere di Fey as the old gods, why not have Pere di Fey be Tanalorn. It is so close already, just a little tweaking and it is perfect!

Tanelorn works! It's a fun spin on the behemots from beyond the stars that Pere-di-Fey has going for it.