Some photos of time with friends crusing around Iceland for 4 days in a Toyota Rav4 (which is like a City Slicker's take on a 4WD). Some roads in Iceland are sealed... most aren't ;-)
I definitely recommend getting a 4WD if you head to Iceland - although Reikjavik is an interesting city, the real highlights of Iceland lay in the countryside and having your own set of wheels is pretty important - and a 4WD is imperative for a lot of roads in Iceland - esp. when it comes to crossing shallow rivers! Also for just deciding to disappear off up random trails leading into Iceland's forboding centre..... it really could be the lunar landscape of a Sci-Fi movie at times.