My husband and I were touring Iceland for 10 days and stay in different hotels of similar or even cheaper prices almost every night. Thus, I think we got a decent idea of the general standards of this country. The hotel Lambdafell is certainly charming, and in a great location. However, it was by far the one with the worst service of all. There is no reception, and the entry system is not only confusing, but actually described in a wrong way. There have no restaurant, service bar in the room, or a vendor machine. We arrived after a long tour to find a place nearby which closes at 9 pm. Other restaurants in the area close at 9:30 pm, except fortunately one in a beautiful camp site (this in June with people traveling at late hours is certainly a limitation). The breakfast was also disappointing. Minimal amount of fruits (oranges cut at 2-3 cm cubes), no fresh bread (i.e. just bagged sandwich toasts), and so on. I cannot understand the good critics of other travelers. Really, this hotel is overpriced.
Good location, and an external jacuzzi, but that's it