Just was in iceland a couple of days ago, only for 24 hours, we stayed in the radisson blu, it was a good hotel, we went on the golden circle night tour, was really good and was able to see the midnight sun i would recommend it. We wanted to go Puffin watching but didnt get time. over 8 years ago
We were there for 4 nights in September and chose to stay in a private house through AirBNB (http://bit.ly/AirBNBtravel). We had a short bus ride into the main part of the city every day but we enjoyed being in the suburbs a little. You can find places on AirBNB for downtown too and you might save money over a hotel.
Any of the tours are good. We enjoyed the Golden Circle and the horseback riding and whale watching tours. At least one time though, check out the local thermal pools in Reykjavik, which are about $4 to get into. We did that every night and enjoyed them more than the Blue Lagoon. about 8 years ago