I live there part time. In fact, I am moving there full time this June, so I should be able to help you. If you have any questions, let me know. It may seem like a plug, but one of my friends rents apartments in Reykjavik, and they are a much better deal than a hotel.
http://apartmentk.is/
Iceland is pretty amazing, but the nice thing is that if you rent a car, it is quite easy to stay in Reykjavik but still drive to some amazing things close by. There is hardly any traffic, they drive on the same side as we do, and the street signs (other than the place names) are either in English, or easy to interpret. Reykjavik itself is a great city with much more to do than its population would suggest. Within an hour's drive or less, there are some amazing places like Hvalfjordur (whale-fjord), the hot-springs at Krysuvik, Lake Kleifarvatn, and even the more traditional sites like Gulfoss, Geysir and Thingvellir.
Anyway, feel free to ask me any questions you have. I am not an Icelander, so I don't have a native's perspective, but I have spent a good amount of time there. I have a bunch of photos from there on my website, so if you are curious, you can look there as well. I am in Brooklyn now, but I will be there in the summer, so if you want to grab a coffee or go shooting when you are there, I am sure that could be arranged.
Stuart