You should have no difficulties accessing cash in Iceland as, so far as I know, everything is functioning normally except for Icelanders who need foreign currency or access to their foreign currency accounts. Icelandic banks and other institutions did a lot of business in Britain and Icelandic access to foreign currency is affected as a result of Britain's actions. Contrary to the implied terrorist guilt by this (and a British student in Germany refusing to share a flat for four with an Icelandic student), the situation is simply one of a small player being caught up in the rather sorry political and financial expediency of a fair weather friend. While you may find that Icelanders feel hurt and even angry toward the British Government, you can expect Icelanders to place no blame on you even if you are British - and they will learn the lesson that presents itself from this. If you get the opportunity, have conversations with Icelanders - you will find an illuminating alternative viewpoint to that presented in the UK media. Enjoy your break.