I agree that you don’t need a day in Reykjavik. We did a food tour for a couple of hours which we enjoyed but I think you could just do a half day there. If you do stay in Reykjavik, I recommend the Edition.
We decided to move around a bunch to avoid all of the long drives.
We really liked Hotel Umi on the south coast - close to the puffins and the Skogafoss water fall which was one of our favorite hikes while we were there. Personally, I thought the golden circle was highly overrated with the sole exception of the tomato greenhouse restaurant which we all loved
https://fridheimar.is/. (Make reservations!). Hotel Ranga was in a beautiful setting and the dinner was great, but it’s somewhat out of the way unless you are planning to hike in Thorsmorck (also an amazing hike but a full day excursion).
I agree that the glacier hike isn’t worth it, especially if you are going to try to go to Diamond Beach and do the zodiac tour.
We stayed at the Retreat at the Blue Lagoon which was definitely high end and fairly out of the way. We did it our last night which worked well.