These natives would also find virgin territory, though, and might be able to work the land and achieve prosperity in the same way that the Norse did later IOTL.
Nope. These are Neolithic or post-Neolithic hunters and gatherers. They will bring no plants or animals with them, save possibly dogs. They will not work the land, there will be no crops, no agricultural package, no domesticated animals.
What's going to happen is what usually happens when a hunter-gatherer culture encounters a virgin space - they'll kill all the easy game, and eventually hunt it to extinction. They'll consume the vast accumulated store of edible plant resources. They'll basically expand to the point of collapse.
Then they'll stabilize in a post-collapse environment, where the original bounty is severely pruned down. And they'll maintain just enough population to survive at a level that will keep the post-collapse environment from regenerating.
Which means a thin population of technologically backwards hunter gatherers.
Now, I can imagine a seasonal cycle built around fishing and sealing in the summer, sucking back lichen and berries, and burning moss in the winter.
The Norse will show up with a fully formed and tested agricultural package which includes a suite of plants, a suite of animals, a suite of tools, and social organization to sustain all that.
The indigenous Icelanders won't have any of that going in, and they're not likely to be able to develop it on their own. There's just not enough of a suite of edible plants available. And there's no land animals except Arctic fox and the occasional polar bear. If Caribou or Reindeer ever colonized the Iceland, they didn't survive the coming of the norse and may well have been extinct before then.
The Norse will show up and find an impoverished island where the resources are barely above subsistence levels. They're not going to find fish and game easy. So it's not going to be all that attractive.
But they'll have no trouble taking it from the natives.
Being of European stock and descent might help their image in the eyes of European colonial powers if, indeed, the Norse don't see a need to colonize or conquer it in the middle ages.
I doubt it on both counts. The Europeans and the Norse never really gave a rat's ass for concepts like European stock and descent. Sorry. As for the Norse not taking Iceland... I don't see that happening. It just means that the taking happens more slowly and more violently. The Norse population of Iceland within the first hundred years was up to 80,000. It might only be 40,000.
The Norse might do better long term. Since they wouldn't have the virgin land bounty to fuel a bubble population, they might grow more sustainably, and with fewer dislocations.
Establishing, instead, a trade relationship with Europe at this time would give them enough long-term contact to get used to European diseases in time for the age of colonization, and would also increase their technological development to something comparable to European tech given enough time to adapt, and the fact that Iceland is a rather fertile place.
Trading ... what? What does Iceland offer for trade by the indigents? The really desirable trading goods - Walrus hide and rope, Ivory and Polar Bears were all to be found in Greenland. There's unlikely to be enough natural resources available to the indigenous to sustain any kind of trade. OTL, the Norse' biggest trading items from Iceland were fish and wool. Well, the wool industry they brought with them and developed. As for Fish, they can probably access that more easily and on a larger scale than the indigenous. Indeed, OTL Icelandic Norse lost control of much of their fishery to their European cousins.
And 'Iceland is rather a fertile place' .... compared to Svalbard?
Iceland could, therefore, become in this time simply another European kingdom, or perhaps even a colonizer in North America in its own right.
I won't say impossible or ASB. But unlikely to an extreme degree.