Here´s my translation. Lot´s of puzzles here.

Alan

Eru þá þegar leikar lagðir í Ásbjarnarnesi og safnað víða til um héruð.
Then forthwith games are fixed (arranged)in Ásbjarnarnes and (participants?) gathered to (them) from far-and-wide  around (the) district.

Kom til vestan úr Miðfirði og af Vatnsnesi og úr Vatnsdal og allt utan úr
(One set) came to (it) from-the-west out of Miðfjörðr and from Vatnsness and out-of Vatnsdalr and all-the-way (allt, Z1) from-outside (from beyond?), out-of

Langadal. Varð þar mikið fjölmenni. Allir menn höfðu á máli hversu mikið
Langadalr. A great crowd-of-people eventuated (came-to-pass) there. All people (men) had in talk (to talk of, ie it was the hot topic, see hafa e-t á máli, under mál, Z4) how great

afbragð Kjartan var annarra manna. Síðan var aflað til leiks og
a paragon Kjartan was (in-comparison to) other persons (men). After-that (it) was performed towards (the) game (ie the sports got under way) and

beitist Hallur fyrir. Hann bað Kjartan til leiks: "Vildum vér frændi að þú sýndir
Hallr was in charge (led (thanks Rob, I nearly slipped up again J) the cause,  beitast fyrir e-t, Z5). He asked Kjartan to (take part in the) sport. “We would-want, kinsman, that you showed

kurteisi þína í þessu."
your courtesy in this.”

Kjartan svarar: "Lítt hefi eg tamið mig til leika nú hið næsta því að annað
Kjartan answers: “Little have I trained myself for sports now the rather? because (the main reason being?) other (activity)

var tíðara með Ólafi konungi. En eigi vil eg synja þér um sinnsakir þessa."
was more-usual with King Ólafr. But I want not to refuse you for this once (see um sins sakir, under sinn, Z1).”

Býst nú Kjartan til leiks. Var þeim mönnum að móti honum skipt er þar voru sterkastir.
Kjartan readies-himself now for (the) sport. .(It) was shared against him by those persons (men) who were strongest there (I think this must mean that all the strongest men had an equal opportunity to contend against him).

Er nú leikið um daginn. Hafði þar engi maður við Kjartani,
(it) is now played during the-day (ie the games last all day). No man there was a match for Kjartan (see hafa við e-m, Z14),

hvorki afl né fimleik.
neither (in) physical-strength nor agility

Og um kveldið er leik var lokið þá stendur upp Hallur Guðmundarson og mælti:
And during the-evening when sport was concluded, then Hallr Guðmundr’s-son stands up and spoke:

"Það er boð föður míns og vilji um alla þá menn er hingað hafa lengst sótt
“That is my father’s bidding and wish (sg modern spelling) concerning all those persons (men) who hither have sought (visited us) from-furthest-away

að þeir séu hér allir náttlangt og taki hér á morgun til skemmtanar."
that they all be (stay) here (all-)night-long (ie for the night) and tomorrow here have-recourse-to (lit: take to) entertainment.”

Þetta erindi ræmdist vel og þótti stórmannlega boðið. Kálfur Ásgeirsson var
This message was well approved-of and was-reckoned magnifently offered. Kálfr Ásgeirr’s-son was (had)

þar kominn og var einkar kært með þeim Kjartani. Þar var og Hrefna systir hans
come there and (it) was exceedingly close between them, Kjartan (and he). Also there was Hrefna his sister

og hélt allmjög til skarts. Var þar aukið hundrað manna á búi um nóttina.
and (she) was very-much fond of finery (see halda til e-s, Z.iii) (and presumably was wearing it). A hundred (+20) of persons was there increased (ie there were more than 120 people there, see auka, Z1) at (the) farm during the-night.

Um daginn eftir var þar skipt til leiks. Kjartan sat þá hjá leik og sá á.
During the-day after (it) was there shared-out towards (the) sport (ie does this mean everyone got an opportunity to play?). Kjartan sat then near (the) sport and looked on.

Þuríður systir hans gekk til máls við hann og mælti svo: "Það er mér sagt
Þuríðr his sister went to (entered) conversation with him and spoke thus: “That is said to me,

frændi að þú sért heldur hljóður veturlangt. Tala menn það að þér muni vera eftirsjá að um Guðrúnu.
kinsman, that you be rather taciturn (all-)winter-long. Persons (men) talk that, that regret will be busy (“gnawing’)at you (cf vera at e-u, Z10) (dative) concerning Guðrún.

Færa menn það til þess að engi blíða verður á með
People (men) put that down to (adduce as a reason, foera til, CV4) that, that no friendliness comes between

ykkur Bolla frændum, svo mikið ástríki sem með ykkur hefir verið allar stundir.
you kinsmen, Bolli (and yourself), (even) as (despite?) (the) great affection which has been between you always (at all times).

Ger svo vel og hæfilega að þú lát þér ekki að þessu þykja og unn
Act thus well and fitly (so) that you let (is this the imperative form of láta or something else?) yourself not take this to heart (see e-m þykkir at e-u, Z1)  and begrudge-not (unna, imperative)

frænda þínum góðs ráðs. Þætti oss það ráðlegast að þú kvongaðist eftir því
(the) good match (see ráð, Z8) to your kinsmen. That would-seem to us most-advisable that you took-a-wife (married) according to that

sem þú mæltir í fyrra sumar þótt þér sé eigi þar með öllu jafnræði sem
which you spoke this former (last) summer, even-though (it) be not for you therewithal (ie completely) an equal-match where

Hrefna er því að þú mátt eigi það finna innanlands. Ásgeir faðir hennar er
Hrefna is (concerned) (ie she´s really not in your league), because you cannot find that (ie an equal match) within-the-country (at home). Ásgeirr, her father, is

göfugur maður og stórættaður. Hann skortir og eigi fé að fríða þetta ráð.
a noble person (man) and high-born. He also lacks not property to adorn (add value to) this match (ráð, Z8 again).

Er og önnur dóttir hans gift ríkum manni. Þú hefir og mér sagt að Kálfur
Also his other daughter is given-in-marriage (married) to a powerful man (person). You have also said to me that Kálfr

Ásgeirsson sé hinn röskvasti maður. Er þeirra ráðahagur hinn skörulegsti.
Ásgeirr’s-son be the most-doughty person (man). Their state-of-life (singular) is the finest.

Það er minn vilji að þú takir tal við Hrefnu og væntir mig að þér þyki þar fara vit eftir vænleik."
That is my wish that you take conversation (have a chat) with Hrefna and (it) give-me-expectation (ie I expect, vænta, Z3) that (it) might-seem to you intelligence to go after (accompany) bodily beauty there (ie she´s not just a pretty face).”