ya what you need to do is make sure you have icelandic language and the latin language compiled as a kernel module. Then you go in gnome for example and open desktop...preferances....keyboard. add icelandic. Add keyboard indicator to your toolbar if you havent already by right clicking on the toolbard (gnome) then after that is added you should be able to change between icelandic and whatever other language(s) you use. To get the special characters you mentioned .. you must hold down the key to the left of the enter key (maybe ´/") and then press i, o, e, y) the other ones you mentioned are already mapped to the keyboard so there is no need to special-key them first.
This is the same on a standard icelandic keyboard btw. :P
bestum kveðjum!