All the wires have a note reporting that the US government has contacted the Icelandic government about Iceland's offer of a residency permit to Bobby Fischer. The only quote they all give is vague:
"We received a message from the U.S. government on Friday suggesting that the Icelandic authorities withdraw the offer to Fischer," said Illugi Gunnarsson, an aide to Foreign Minister David Oddsson. He said the government had not yet responded.
But Aljazeera seems to have a later development (in an AFP report):
According to the Icelandic government on Monday, the US ambassador in Reykjavik – James Gadsden - was informed that its offer to Fischer stands. ... Iceland said it would not withdraw its offer because the US has not officially requested Fischer's extradition from Japan.
So the question is whether they will or not. The US "suggestion" to Iceland may just be gamesmanship. The US can act like they care so as not to appear to coddle someone who cheered 9/11, Iceland can make a show of standing up to the US, and they both get what they want. My theory that the US just wants Fischer to disappear will be largely proven wrong if they move to extradite. But basically if they don't get him, they probably didn't want him.
The state of things are carefully followed here in Icelandic media.
Even if the usa would request him, Iceland has no obligation to release him, since what Fischer did is not a violation to Iceland law. Iceland did participate in the Yugoslavia boycott in 1992, however even if playing chess would be a crime, that crime would now be "outdated" according to Iceland law. It was reported today that the American ambassador in Iceland was called in on a meeting with Iceland's Foreign Office and told that despite USA's request to cancel the offer, the offer WILL stand and Iceland will not hand him over to America.
So the only concern now is, since Icelandic Foreign Secretary, Oddson, has made it absolutely clear that Iceland will not release him to Americans, knowing this, dare Japan allow him to travel to Iceland, against the will of USA?
In a radio interview today with Icelandic media Fischer said he has not yet heard anything from Japanese government, but tomorrow(tuesday) his lawyer will speak with them and things will be clearer. He still believes that if Japan will not release him, he will be sent to America and murdered.
Anyway I fully agree with what you said that the Americans "objection" were just a mere formality and in their mind this is probably a good solution.
Also, Icelandic government has been under rather heavy criticism from the public lately for following USA overseas policies too much, namely signing Iceland to "land of the willing" in the Iraq war, against the will of 90% of the nation. So perhaps this is one way for the government to redeem themselves and act tough, opposing the US, although of course they say it's for humanity reasons.
It was found out today that the neutral country of Switzerland declined Fischers wish for a political assylum.
Iceland views Fischer as a hero and the one who put them on the map - he's always going to be welcome as a chess superstar. No doubt it will further improve the country as a place to buy chess too huh?