No idea if it was Iceland 'B', but given the clubs that the starting eleven (against England) play for, is not a super impressive list, I'm sure you are right.
Iceland clubs x2, Russia - CSKA Moscow, Greece - PAOK, Denmark - Brondby, Serie A - Brescia, Bundesliga 2 - Darmstadt, Sweden - Malmo, Serie A - Bologna, Championship - Millwall and Eredivisie - AZ.
These sort of things are always fraught with agrument, but that's the sort of player club list that a full strength AWs would not be far off. Depending how you view MLS etc.
So this Iceland B side, almost managed a 1-1 draw (missed a pen late) against England. Yeah a bunch of English players out of season (but so would be most of the Iceland guys), played in Reykjavík, and a game probably without any atmosphere/edge in front of no-one - so hard to get up for.
But yeah will a 'moneyball/sum of it's parts' side like Iceland, always do better than an AWs side that rarely plays, no matter what calibre of player NZ has. Just because they have an excellent youth coaching system that has all the kids exposed to high level coaching at a young age, plus they just play together more often, and nearly always against top Euro opposition.