There's no isolation. If a plugin breaks or is slow, the whole of Wordpress breaks or is slow(er).
That's not entirely their fault. Every PHP application that runs in a shared hosting environment is stuck with the same unsolvable stability / security problems:
* Shared login to the database means and plugin or theme can see any data on any table
* Single-process structure ensures that a single glitch halts the world
* Serial execution means a slow plugin can choke a site
And so on and so forth.
I still believe that when web apps are targeted at VPSes a lot of this pain will go away. Imagine if plugins ran as jailed processes and communicating by message queues. If a plugin faulted or didn't meet the render deadline, its input would simply be skipped and life would go on.
A man can dream.