HotelChatter

The rooms are outfitted in Scandinavia cool and come with satellite TVs and free Internet access. When the weather is cooperating, you can walk out to your own deck.

The clinic has its own private lagoon (away from all the tourists) with the same milky hot water, as well as an indoor pool. You can get all kinds of massages, including a water massage where you lie on a floating mat in the lagoon, covered by warm wet blankets while you're getting a rubdown.

Rates are a bargain at current exchange rates: $159 to $187 double including breakfast and entrance to the Blue Lagoon.

Ed. Note: Tim Leffel actually wrote this Iceland Hotel Guide before Iceland experienced a national meltdown due to the banking crisis. That said, Iceland's loss is a traveler's gain. Tim sums it up best in this article which he wrote for Tripso:

As the free-lending banks on the small island nation crash and burn, Iceland is facing a “national bankruptcy” according to some reports. As unbelievable as this would have sounded a year ago, for the moment it is cheaper to vacation in Iceland than it is to do so in New York City. Everything is half the price it was just seven months ago.