Last month, during a short visit to Iceland, I was able to visit the Alafoss Factory outlet in Mosfellsbaer near Reykjavik. I took a bus (number 15) from the Hlemmur bus station in Reykjavik, and it was a relatively easy trip - the landmark for getting off the bus is a branch of KFC. The instructions on the website are probably better suited to those travelling by car; I suggest printing out a street map from Google maps or similar, you then have more information to get your bearings. There are footpaths between the bus stop and the shop that mean it isn't necessary to walk on the busiest roads.
The nice surprise was that the yarns are not expensive (February 2012), even in the city centre stores. Although you only save a little bit by coming to the factory shop, I'm glad I made the trip. The shop is well stocked and the short trip was fun. It was tempting to buy too much, so I hope I limited myself sensibly. I got four balls of Einband, intended for a pattern in Lucinda Guy's Northern Knits (my review here), enough Lett-Lopi for about 3 pairs of mittens, a traditional mitten pattern and a bag to put it all in.
I made my first pair of mittens, using the new pattern, at once and am delighted with the result.
... click on the r to see the mittens on my ravelry project page (login needed).