It is NOT illegal to own Bitcoin in Iceland. You can mine it, you just can't buy it because they don't want foreign currency being purchased with Krona (because they know Krona is crap and nobody wants it). Good thing Auroracoin will be given to them for free
How the regulators will determine, where bitcoin was originally mined? From that point of view, if Aurora was premined in Iceland, it's legal to use it I consider)))) Are the devs really from there? )