I can confirm the error in Locations.xml (version 2.22.1.1-0ubuntu1).
But the clock applet shows the correct Atlanten/Reykjavik (in Swedish),
so it seems to be locale dependent.
** Changed in: libgweather (Ubuntu)
Status: New => Confirmed
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Invalid timezone in Locations.xml for locations in Iceland
https://bugs.launchpad.net/bugs/217252
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