Isolationist? To a certain degree yes, but not total isolation. Everything revolves around foreign trade and upsetting Indonesia could disrupt that trade.
If a conflict in Korea broke out and the UN called for a military force to intervene or protect South Korea, Australia would more than likely attend the party.
If Indonesia invaded PNG and the UN didn't take a stance against it, Australia probably would not either - sure the government would spout off volumes of dribble about how bad and nasty the Indons were for invading peaceful PNG but they'd tried to avoid war for as long as possible (something along the lines of Chamberlain appeasing Hitler is not too far fetched).
If the Indonesians went to war against Malaysia, then Australia would probably wait for a Commonwealth nations or UN mandate before committing itself to military action. We'd wait to get approval from the "big boys" first or we'd wait until the "big boys" committed and then we'd join them.
The Australian intervention in East Timor was a reasonably clear case of "We will win" with very little chance of full-blown war against Indonesia. In fact Aussie troops were militarily restricted by the political conduct of the intervention, in a number of cases they were expected to allow clearly identified gunmen to shoot at them but they were not allowed to fire back without government approval. There were even cases when clearly identified Indonesian para-military police where shooting at them and the Aussie soldiers were told not to prosecute the engagement and to let the Indons escape.
While we do have trade & good relations with South Korea, it's not seen as in our backyard anymore so any action would most likely be based on UN approval.
There is a lack of government will to play hard against Indonesia for the reasons stated previously, the government has got to the point were it is overly sensitive to criticism from Asian nations in the region and so it plays the "conciliation" game instead of flexing any military muscle.
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