My wife and I went to Iceland just over a year ago, in September. Personally, I would reccomend going in the "busy" season, because just as Rick says for Britain, it is still not that crowded, and tons more activities are available. For instance, in Reykjavik, the outdoor historical museum closes after August and does not reopen until the end of May. Also, prices aer not significantly higher and it stays light much longer. Iceland is incredibly beautiful and really easy to get around.
Unfortunately we were only there for three days, but you could easily fill a week.
Iceland Air has some great deals, so check them out at www.icelandair.com
Reykjavik can probably be a full day, then a half day of whale watching, followed by a realxing afternoon at the Blue Lagoon. We did a trip to the Seljalandfoss (I think?) waterfall near the coast and then into Thorsmark, which was very beautiful.
Another full day would be the "Golden Circle" tour, which is described just about everywhere, so i won't bother!
Iceland is one country that I would love to go back to. The people speak excellent English, the land is starkly beautiful, and the sights are wonderful.