Stayed for Christmas two years back and we loved it. It’s certainly not as pricey as some people make out but we tend to do things on a bit of a budget. We stayed in Hotel Fron which is clean, comfortable (no frills) but brilliantly located in the centre and cheap. The Chuck Norris Grill does the best burgers ever! Drinks are notoriously expensive but use The Grapevine Appyhour app to source cheap beverages and take in all the cool spots at the same time. 10-11 supermarkets are really expensive but Bonus is dirt cheap. Gulfoss has to be done and watching the sun rise on boxing day with a pint in the blue lagoon was a wicked experience.
When we went you’d have to be very brave to hire a car an go exploring but we plan to go back in the summer and hire a 4×4 camper.
If you run out of things to do (or maybe you have a thing for whale dick)they have a penis museum.
Caught the lights on the first night there too, use this to hopefully find a good forecast. – http://en.vedur.is/weather/forecasts/aurora/