A friend of mine has a post up at his site referring to an earlier post of mine, Scientific Studies of Intelligibility in Scandinavian Languages.
North Germanic has been traditionally divided by East Norse (Swedish, Scanian, Danish, etc.) and West Norse (Norwegian, Faroese and Icelandic). There are much greater differences between dialects of Swedish and dialects of Norwegian than between Swedish and Norwegian themselves. Nobody can understand the Danes because their pronunciation is so different.
Icelandic, German, Dutch and Swedish are much more inflected than English is.Even Danish is quite a bit more inflected than English. English has clearly lost most of its inflection.
For a modern Swede, Dane or Norwegian, trying to read Icelandic is like if we English-speakers tried to read the Old English of Beowulf. Icelandic is the odd man out of the North Germanic languages.