float(item) do the right thing: it converts its argument to float and and return it, but it doesn't change argument in-place. A simple fix for your code is:
new_list = []
for item in list:
new_list.append(float(item))
The same code can written shorter using list comprehension: new_list = [float(i) for i in list]
To change list in-place:
for index, item in enumerate(list):
list[index] = float(item)
BTW, avoid using list for your variables, since it masquerades built-in function with the same name.