Re: So why bother to send a letter of request to a foreign country...
I imagine GoDaddy would be upset in that scenario, but I don't see how the FBI would be involved.
Actually, I sympathise with the FBI this time round. If you want to conduct a search in foreign territory, where do you apply for a warrant? Whom do you serve it to? What if the territory concerned has no concept of a "search warrant"?
Clearly, what they should have done is to apply to the Icelandic police to do their dirty work for them, because they'd have the framework in place for jumping through their own administrative hoops. But I can well imagine scenarios in which that would be contra-indicated (e.g. if you don't trust the Icelandic plod not to say something to someone), and then they'd end up right back here.
I really don't see how you can blame the FBI for not following US law outside the US. If you want to criticise them for breaking Icelandic law then go right ahead, but that's a different rant entirely.