Update 15 June 2012:
A lot of people have been having trouble finding this one, so until I can get over there and update the coordinates, I have added some information to the Hints/Spolier info that may make it easier. Happy hunting! :-)
The location is typical for this area, where the locals enjoy the natural landscape that makes this country so special.
There are works of art nearby and details can be found from the tourist information in town, or at this site. Hafnarfjörður has many lovely points of interest and they're all worth visiting at any time of year.
The immediate surrounding is home to many elves, who live in the rocks. You can read more about our friends here.
Please try to replace the cache *exactly* as you found it, so that it's not too easy to spot.
For refreshments, we'd recommend Súfistinn, in the town's main street: it's a fine coffee house and eatery.