Bitcoin is still illegal in Iceland because any outflow of currency is not allowed which makes auroracoin even more interesting. Auroracoin was created in Iceland for the people of Iceland. In order to invest in cryptocurrency in Iceland, auroracoin is the only viable option now and an exceptional one.
Bitcoin has never been illegal in Iceland. It has been illegal to buy USD, EUR or other currencies for ISK because of the currency controls.
The currency controls have been lifted partially for individuals and we will have to see if companies in Iceland will get the same rights, I doubt the government will fully abolish the controls, but who knows.
Iceland implemented currency controls first in 1931 and lifted them partially in 1995 when Iceland entered the European Economic Area. The Central bank of Iceland decided and fixed the foreign exchange rate in Iceland until 2001 when currency controls were fully dismantled and the Fx rate was determined by the market.
It only took us 7 years from 2001-2008 to go fully overboard with a free flowing ISK and no currency controls or 13 years counting from 1995. So I'm guessing from history that the ISK can never fully be set free without dire consequences.
I like that auroracoin hasn't quite exploded yet allowing me time to slowly accumulate. I believe Auroracoin will become the "bitcoin" of Iceland someday where it will be utilized in everyday transactions at many businesses.
Looking at Bitcoin's scaling problems and soon to be $1 fee for normal transactions I think that it will never be used in everyday transactions anywhere in the world and Bitcoin's role will be like gold's role 100 years ago when it was used as currency and local cryptocurrencies like Auroracoin will be the equivalent to silver and will be used in everyday transactions by individuals.