On July 1 2004 ISNIC started accepting registration of localized (IDN) domain names. Names are restricted to the official icelandic alphabet (ASCII plus áéýúíóþæðö). During the registration "sunrise" period for localized domains (until January 1 2005), preference will be given to registrants of corresponding non-IDN names according to provisional article 14 of the .IS delegation rules.
Note that these names have very limitied utility as most client programs currently lack the ability to translate localized domain names to their ACE encoding (see RFC3090, RFC3091 and RFC3092).
Please contact hostmaster@isnic.is for further information on this.