Is it possible to purchase a pre-paid SIM card that with cellular Internet access in Iceland ? If so, in what parts of Iceland can I expect coverage ?
Vodafone Iceland has this option: buy a prepaid card for 1000 ISK (~$8), and use 500 ISK from this credit to receive a 300 MB data pack.
Additional info and rates on their official page.
As far as coverage goes, GSM access is available on the whole island, while 3G is mostly limited to, uh, "urbanized" areas of Iceland. See the map for details.
My Iceish is not great, but it seems that Nova have prepaid 3G SIM cards, which from what I gather are only used for mobile internet. You could get 1 GB/month for 990 ISK at 5 Mb/s, for example. A quick scan of the terms and conditions reveals you might have to have an address in Iceland , but I'm not sure if this applies for the 3G Free (3G frelsi) service.
Yes it is, and it's pretty good. I'm involved in a project that does lots of research on Glaciers (project link) and as such we spend a couple of weeks there a year. For the last couple of years we've been staying at a farm near Hofn (15km away) and we've used a vodafone 3G dongle to provide internet access for 10/11 people, and whilst it's not be amazingly fast it's been more than adequate for browsing emails and Skype video calls. It would always connect to a 3G signal - never having to fall back to GSM. The one problem with this was we needed an Icelandic identity number in order to buy the dongle.
We have also used the same dongle at Jöklasel, a cafe 840m meters above sealevel and by the side of the Vatnajokull, and have maintained a good enough link for skype.
We have also used on of the other local networks Simmin for data coverage (GPRS) actually on the glacier and they have also proven themselves to be pretty reliable. Their prepay SIM cards are freely available and data is pretty cheap.