Well...the Iceland situation is not an easy question. Since I specialise in historical linguistics, I delight in the fact that there is still a Germanic language spoken out there that has preserved most of it "tenor" (though, phonologically, this is again very different). I also think the compounds for modern concepts they come up with (or perhaps have come up with), as opposed to borrowing, are a beautiful addition to the language.
Although I cannot ignore that this is referred to as "purism" (quite rightfully), since the development of a language was interefered with. If I was asked for an opinion, I'd cast aside my subjective feelings about Icelandic and call it purism. BUT, a caveat is in order, I would only criticise the people that performed this and the era when they decided to do so, as for most Icelandic native speakers, born after (or into) the period of this purism, these compounds seem "natural" and should as such not be questioned as natural feature of Icelandic.
Yehuda's creation of Modern Hebrew is another type of matter, I think, since a language was revived , though reshaped, for communication purposes of the Jews (who spoke different languages!) gathered in Israel. If they decided to take up a language and communicate in it, I think there is no moral dilemma here; trying to speak Tiberian Hebrew without modifying it, there would be, though, in my book.
Casting aside any political circumstances (which are so often brought up here), I do not see any big linguistic/moral dilemma in reviving a language if you cannot communicate otherwise.