Here’s my translation

Alan

Hún tók nú um göndulinn á honum ok strauk um ok mælti: "Þetta er fimligr foli ok þó mjök rétt hálsaðr."
She now took hold of his (ie the young-stallion’s) ball-of-string (clew, tangled mane, limp member? I can find no CV or Z evidence that göndull can be translated simply as shaft or suchlike despite its etym links to gandr) and stroked (him) and spoke: “This is a nimble young-stallion and yet very erectly clasped-around-the neck (ie stands very upright when clasped around the neck?. I can find no CV or Z evidence to support a translation of hálsaðr as simply ‘necked’)

"Ekki er vel komit fyrir hann höfðinu," sagði hann, "en hann kringir betr makkanum, þá hann hefir drukkit."
“(It) is not well placed for him in the-head, (ie his head is not well placed)” he (ie Bósi) said, “but he goes-round better in the-upper-neck (makki, CV, ie his upper neck curves better?), when he has drunk.”

"Sjá nú fyrir öllu," segir hún.
“Take (imperative) care of everything now,” she says.

"Ligg þú sem gleiðust," kvað hann, "ok haf sem kyrrast."
“Lie you with-legs-as-widespread-as-possible (sem + superl) (gleiðr not gleðjast),” he declared, “and remain as-still-as-possible (sem + superl).

Hann brynnir nú folanum heldr ótæpiliga, svá at hann var allr á kafi. 
He waters now the-young-stallion rather unsparingly, so that he was all under water (completely submerged)

Bóndadóttur varð mjök dátt við þetta, svá at hún gat varla talat. 
(The) farmer´s-daughter became (ie) was very startled (dár við e-t, Z1 rather than Z2) by this, so that she was scarcely able to talk.

"Muntu ekki drekkja folanum?" sagði hún.
“Will-you not drown the-young stallion ( drekkja, Z2, but possibly suppress, quell, Z3; is this a play on drekkja?)” she said. (ie Either aren´t you at risk of drowning the young fella? or shouldn´t you be holding the young fella back? Both would make sense in the context, I think)

"Svá skal hann hafa sem hann þolir mest," sagði hann, "því at hann er mér oft óstýrinn fyrir þat hann fær ekki at drekka sem hann beiðist."
“He shall have (the) most such (ie as much) as he (can) bear,” said he, “because he is for me often ungovernable (ústyrinn) for that (ie because) he gets not to drink when he asks-on-his-own-behalf.

Hann er nú at, sem honum líkar, ok hvílist síðan. 
He is now busy-at (it), as pleases him, and rests (present tense) after-that.

Bóndadóttir undrast nú, hvaðan væta sjá mun komin, sem hún hefir í klofinu, því at allr beðrinn lék í einu lauðri undir henni.
(The) farmer´s-daughter wonders (present) now, from-where this inundation will (have) come, which she has in the space-between-her-legs, because all the-bedding played into a lather (ie became awash) under her.

Hún mælti: "Mun ekki þat mega vera, at folinn þinn hafi drukkit meira en honum hefir gott gert ok hafi hann ælt upp meira en hann hefir drukkit?"
She spoke: “Will that not be able (ie possible), that your young-stallion has drunk more than has done good for him and he has brought up (ie expelled) more than he has drunk?”

"Veldr honum nú eitthvat," kvað hann, "því at hann er svá linr sem lunga."
“Something now rules (has come) (valda) over him,” declared he, “because he is as limp as a lung.”

"Hann mun vera ölsjúkr," sagði hún, "sem aðrir drykkjumenn."
“He will be ale-sick (hung-over?),” said she, “like other drinkers.”

"Þat er víst," kvað hann. 
“That is certain,” declared he.

Þau skemmta sér nú sem þeim líkar, ok var bóndadóttir ýmist ofan á eða undir, ok sagðist hún aldri hafa riðit hæggengara fola en þessum.
They amuse themselves now as pleases them, and (the) farmer’s-daughter was in-turns on-top or underneath, and she said-of-herself to have never ridden on a more easy-going (hoegr + gengr, in comparative) young-stallion than this.

Ok eftir margan gamanleik spyrr hún, hvat manni hann sé, en hann segir til it sanna ok spurði á móti, hvat þar væri títt í landinu. 
And after many an amusement (gram sg) she asks, what for a (ie kind of) person he was, but (and) he says to (her) the true (story) and asked in return, what had happened (see tíðr, Z5) there in the-land.

Hún segir, at þat væri nú nýjast, at þeir bræðr Hrærekr ok Siggeirr höfðu nát Hleiði konungssystur, en drepit Hring konung í Gautlandi, - "ok svá eru þeir nú frægir orðnir af för þessi, at engir þykkja nú þeim líkir í Austrvegi, ok hefir konungr gefit systur sína Siggeir, ok er þat þó á móti hennar vilja, ok á nú brúðlaupit at vera innan þriggja nátta.
She says, that that was now newest (ie the-latest), that those brothers Hrærekr and Siggeirr had got Hleiðr (the) king’s-sister, and killed King Hringr in Gautland, - “and they are now become (pp of verða) so famous for this journey, that none (plural) now are-reckoned like (ie the equal to) them in (the) East-way, and (the) king has given his sister (in marriage) to Siggeirr, and that is nevertheless against her will, and now the-wedding-feast has to be within three nights.