`We just returned from a trip to Iceland and had a few tips we wanted to share.
We rented a car, and I recommend that approach. In addition to keeping your own schedule, the ability to hike and explore wonderful places with no other people around is amazing. If you do rent a car, do not wait for the rental car shuttle bus at the airport. It was a complete mess when we were there, and we realized that the walk to the rental car offices (at least the one we were using) was only 5 minutes through the parking lot. In fact, it was about the same length of walk to get to the pick up spot for the bus, just the opposite direction. Parking in the city was no problem at all.
As everyone states, the food is expensive. But, we agree that the lamb and seafood dishes, although pricey, were the best value. $30 for fresh fish v. $25 for average hamburger and fries.
Finally, the Rick Steves book does a good job. I personally thought the scenery and drive on the West Side was fantastic, so I would recommend that day trip if you have time. Also, the hike to the thermal river is amazing in and of itself even if the thermal river did not greet you at the end. That adventure was one of the highlights of our trip.