Towards the back of town is a walking path that follows some of the natural hot springs and pools in the area. This part of Iceland is very active geothermally, and hot water is pumped out of the ground to heat homes & generate electricity nearby.
Steam pours out of holes all over the grounds, and small mud pools bubble near the path. However, it's not very scenic, and there are massive clouds of gnats swarming everywhere in this area -- so I don't stay long. I saw almost no other insects anywhere else -- but it seems like every flying bug in Iceland is concentrated right here. There's a horse path here too, and some riders are wearing mosquito netting over their heads. The insects don't seem to bite (much), but they are annoying (flying into eyes, ears, nose and mouth). Even the horses seemed unhappy.
Driving to nearby Reykjadalur (the "hot river"), for a hiking path about 4-5 miles long (round trip) that also features many hot pools, plus an area near the end where people regularly soak in the river. There are a lot of gnats here too, but it's not quite as bad. The smell of sulfur and steam fills the air.
