That bill was DOA, posturing by a politician to appease his left flank. Nobody took it seriously and his party is no longer in power.

But it's still illegal to publish pornograpy in Iceland isn't it? http://www.althingi.is/lagas/nuna/1940019.html#G210

Yes, it does impinge on freedom of speech locally. No politician is going to move to abolish it (for now), but enforcement is next to non-existent.

It appears also (as best as I can tell without being able to understand Icelandic) that there is a law on the books that makes it prosecutable to 'publicly ridicule an individual or group on the grounds of their "nationality, skin color, race, religion, or sexual orientation."'

I wonder how broadly that could be interpreted. The UK doesn't give me hope.