I'm especially annoyed that I can choose Icelandic as a keyboard, but it comes with no spelling support unlike English or German and probably many other languages.

It does however come up with replacements for words, that I manually entered while the Icelandic keyboard was active.

I suppose these wordlists are just files somewhere in the FS, but where is the place, and what is their format?

There is a hunspell dictionary for Icelandic on Cydia, which works fine with Inspell. But its not exactly the same experience to just get a hint, that my word is misspelled, then select it, then hit "Correct" and then select some appropriate word. I'd like it to just propose whatever it has from its database of words.

Any suggestions?