There are two things that contradict each other
First of all, Vanilla Ice has died and is now a vampire so he actually needed to die when he came in contact with the sun. And no the "he hasn't transformed yet" doesn't work because all the vampires Dio created in the past transformed immediately, plus Vanilla Ice was already dead so it just doesn't make sense
And second of all, even if we let this pass when Vanilla Ice was stabbed in the head, if he wasn't a vampire he would have died.
So there was no need to actually kill Iggy or continue the battle