Hi Stove man. I had just the same problem with my son at about the same age. I stumbled upon the perfect pack - about 25 /30 liters + short back - unbranded cheap Chinese 'Army style pack' copy. I found it in the local Army suplus store which normally caters to the local fishing community. He's still using it as a day sack, so not ready to sell it on yet. It's been an excellent purchase.
You need to 'speak' with Paddy Dillon. He wrote the Cicerone guide to trekking in Iceland. He's on here from time to time -depending on his travel/walking schedule. His latest post was 21 May 2013 - mmh, he may be away??? Try contacting him via his website - www.paddydillon.co.uk
What time of year are you planning to be in Iceland?