On July 1 2004 ISNIC started accepting registration of localized (IDN) domain names. Names are restricted to the official icelandic alphabet (ASCII plus áéýúíóþæðö). During the registration "sunrise" period for localized domains (until January 1 2005), preference will be given to registrants of corresponding non-IDN names according to provisional article 14 of the .IS delegation rules.
http://www.isnic.is/