This is Part II of a series of papers in which we address the role of microscopic solvation in the association reaction between a free iodine atom and an iodine doped van der Waals cluster : I + I (Ar)n --> I2 + nAr. The influence of microscopic solvation on the I + I to I2 reactivity, reaction mechanism, energetics, and product energy partitioning is the major focus of our study. The overall reaction for I + I (Ar)12 --> I2 + 12Ar can be characterized by three fundamental processes : ( 1 ) capture of the incident iodine atom by the I(Ar)12 cluster; (2) diffusive migration of the captured I atom on the surface or in the interior of the cluster, leading ultimately to an encounter with the other I atom to form a highly excited I2* molecule; (3) vibrational relaxation of the nascent I2* product, leading to evaporative cooling and decomposition of the cluster. Part I [J. Chem. Phys. 98, 8551 (1993)] dealt with the capture process. This article focuses on the chemical dynamics of the subsequent processes of diffusion, vibrational energy transfer, and evaporative cooling. The stabilization of the chemically activated I2* molecule through evaporative cooling eliminate the need of a third body collision as required in isolation gas phase recombination. The overall distribution of final energies is nonstatistical for the chemically activated I2*Arn. The final vibrational energy of I2 exhibits a nonthermal structure even after all the argon atoms are evaporated. In addition to monoatomic sequential evaporation, a "fissioning" mechanism, leading to the formation of at least one multiatom fragment, is observed. The relationship between structure and dynamics is explored. The dynamics of vibrational relaxation, diffusion of the captured iodine, evaporation, and fragmentation pattern, final I2 energy partitioning are found to be strongly dependent upon structure and temperature of the doped cluster. A spectroscopic experimental verification of the above observations is also proposed.