They wanted Bjork to sing Gollum's song but she was about to have a baby. So they got Emiliana Torrini, who despite the name is also Icelandic.
I think there's more of a case for Numenor than the Shire, myself. I'm not sure about the peaceful nature of the early Icelanders...The sagas are set in the 10th and 11th century, around the time the country was founded, but were written in the 13th century, by which time the Republic had collapsed in bloody civil war. Iceland was taken over by the Norwegian king at that time because of the internal chaos in the country.
I think the Shire feels very English indeed, and much too gentle and fertile a land to have any resemblance to Iceland. It's a harsh, windswept place - tundra and permafrost and what have you...
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Out went the candle, and we were left darkling
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