To Gordon and the others with whom I corresponded about this:
I checked the German books that I mentioned earlier.
I then realized that they were actually 18th century
REPRINTS of earlier 16th century books. Still, the
types are very similar to what you find in the 1534
Luther Bible, and I would definitely call it FRAKTUR
(= which developed in Germany from the older Gothic types ).
The umlauts are indeed indicated, but NOT by double dots
placed above the letters, as I at first falsely seemed
to recall. No, the umlauts in the 18th century Fraktur
that I looked at, were rather marked by a single inverted
comma placed above the letter.
What remains unresolved then, is at what time the ö
was introduced into Icelandic. I know that some early
Icelandic books were printed in Germany(?) and Denmark.
I can try to take a look at them too. But what about
the history of bookprinting in Iceland itself? And
when did they begin to use the ö in Icelandic handwriting?