Within the past few weeks I have used the hand wash cycle on my washer and a squirt of Soak for detergent on two woolen projects. One was my station wagon blanket, knit from the Brown Sheep (kit from MDK). The other is a sweater from a doubled strand of Alice Starmore Scottish Campion (shetland wool). Both came out much softer -- the transformation of the sweater in Shetland wool was astounding.
I gave the blanket to my son and his girlfriend last Sunday. She immediately cuddled up with it, continuously petted it, and kept murmuring "it's so soft".
You might want to try a Soak bath for your Icelandic wool. Part of what makes wool scratchy is guard hairs spun into the yarn. They are stiffer and shorter than the rest of the sheep hair so they poke out and scratch. A bath in a front loading washer will remove some of those guard hairs when it spins out (the item also dries faster than if you wash in a tub and try to squeeze the water out).