Hi Chris,
stay in hostels (
http://www.hostelbookers.com/ http://www.hostelworld.com/ ); better still, look up the hostels on these sites then contact direct, usually cheaper still, though hostelbookers don't charge fees. Spring, summer, autumn months there are lots of hostels available now, all over the island. If ye book, say 6-9 months in advance, it'll cost between 12-28 GBP per night. Been there 4 times (football trips, primarily, but enough time tae get around as well.)
As Manfred says it is expensive but cheap lunches/brunches are easily found and ye can cook in the hostel in the evening. There's plenty happy hours also which often include food.
Don't go tae Bjork's bistro - total rip-off.
Kaffebarinn, Dubliner, Vikingakrain (Reykjavik town centre) all have good, cheap pub food and happy hour(s) booze at "cheaper prices". Difficult tae recommend restaurants, bistros etc. as they open and close all the time.
Akranes @ 20-25k fae Reykjavik, (small but growing) and Keflavik (airport) are much smaller than the capital area, though a hostel in Keflavik was only 9GBP last time we were there.
Blue Lagoon, now a tourist trap, is a must visit - though much more fun in winter. Swimshorts and -11°.
Ah'll leave the scenic areas tae others who have visited specifically for photography. Ye'll have a great time, Icelanders are very hospitable folk.
PS How could ah forget, the restaurant at the bus terminal in Reykjavik. May not be the same cuisine or owner now but the guy who used tae have it said "If it swims in the sea I can cook it for you" and he had everything in his cold room. Best seafood platter in the country(and that's saying something in Iceland !). Affordable too...