I flew back to Munich from Newark with Icelandair three days ago. I had offered €600 for a Saga upgrade for the EWR-KEF leg (the upgrade prices are per segment!), but it was rejected as too low. In hindsight, I'm glad it was, because I booked a seat directly behind Saga class for around €50 instead, which offered more legroom than I could use. And from this seat I could see that the Saga seats didn't recline either or at least not much further than the Econony seats; so there is no greater chance of sleep either. The on board selection of food is sparse, unless you book something in advance. I had booked a three-course Icelandic meal, which wasn't cheap, but it was good and a bargain compared to the hot dogs and pizza slices on offer at the airport. You get enough non-alcoholic drinks, but your beloved bedtime beer is only available al peso d'oro.
I found travelling with Iceland Air very pleasant overall. The only inconvenience is the transfer in KEF, which is calculated so tightly that it only works well if the flight schedule is adhered to. Unfortunately, this was not the case on the return flight because a passenger collapsed during boarding at EWR and so her suitcase and of course all those blocking it had to be unloaded again. The result was a transfer time of only 20 minutes in KEF with hectic running. I made it (my bag still hasn't) because I was able to use one of the automatic gates for Schengen entry; I don't know what happened to the travellers who had to join the immense queue, which easily numbered 200-300 people. In any case, we departed on time. Lesson learned: it is even more important to pack everything vital in your hand luggage than on a direct flight.