We soon discovered that English was just as dominant in the city of Reykjavik. Most signs and menus were in Icelandic first, with English "subtitles".
My next thought was that it must've due to the increasing tourism industry in Iceland - they must want to cater to as many people as possible. But then, why was there only Icelandic and English, and no other languages? Surely there were a lot of tourists from Japan and China as well.
My questions were put to rest the following day, while we were on our first tour. We were taking a buggy tour, and the young man (he was 21, so I'm allowed to call him that) who was touring us around spoke English without any catches.
We first asked about the languages they learn in school, and were told that most people speak Icelandic in school until about grade 3, when they start taking English in the same manner that we learn Core French. Then in secondary school (high school) they must also learn Danish, a relic from when they were under Danish rule.
That still didn't fully explain why he could speak English so well though. Quite frankly, I can "speak French" too, but you wouldn't find me speaking nearly so well as he did. It was quickly explained though when Gilles asked again why he could speak English so well, specifically. He responded, looking sideways at Gilles with a sheepish expression on his face, that the only television in Icelandic was the news, the rest is in English.
All of that said, there are differences in the way English is spoken. The most noticeable was their unconscious use of the word "Yoy". It is used in the same way that one might use "Um..." or "Ya", when not actually answering a question. (It is inserted at near random between thoughts, or parts of thoughts).
The other main difference I noticed was the pluralization of words. Without fail, each time a word changes or remains the same to become plural without adding an 's' at home (such as mouse to mice or sheep to sheep) they would still add an 's' (resulting in 'mices' and 'sheeps'). It was a most peculiar trait, and one that I found to be quite interesting.