Have you tried

http://www.icetourist.is and/or http://www.farmholidays.is?

There is a lot of information available in English on both websites, so you might find something useful there :o)

Have a great trip :oD

There a hostel in Hofn as well as one a bit outside, in Vagns…

http://www.hostel.is/default.asp?cat_id=19

I stopped inside the hostel in Hofn and it seemed nice. There’s also a great guesthouse just before Hofn (traveling west) – very sweet couple with a farm. I wish I had the address and their names handy! It’s the only house for miles on your right, maybe 30 miles before Hofn.

They made me and my traveling partner one of the best breakfasts I’ve ever had. Fresh lamb sausage and sheep’s milk… so good. I’ll rifle through my notebook and see if I have the info.