We examined genetic structure among five species of Lake Victoria haplochromine cichlids in four island communities, using a full factorial sampling design that compared genetic differentiation between pairs of species and populations of varying morphological similarity and geographical proximity. We found that allopatric conspecific populations were on average significantly more strongly differentiated than sympatric heterospecific populations of morphologically similar species. Allopatric heterospecific populations of morphologically dissimilar species were most differentiated. Our work demonstrates that phenotypic divergence can be maintained and perhaps even evolve in sympatry despite considerable gene flow between species. Conversely, phenotypic resemblance among conspecific populations can be maintained despite geographical isolation. Additionally we show that anthropogenically increased hybridization does not affect all sympatric species evenly but predominantly affects morphologically similar and closely related species. This has important implications for the evolution of reproductive isolation between species These findings are also consistent with the hypothesis of speciation reversal due to weakening of divergent selection and reproductive isolation as a consequence of habitat homogenization and offers an evolutionary mechanistic explanation for the observation that species poor assemblages in turbid areas of the lake are characterized by just one or two species in each of a few morphologically distinct genera.