I've heard this story a couple of times before, about a Viking who was mocked by his fellow Vikings because he refused to impale children on spears.
Edit to add: I first heard this story from a Dutch source. Don't know if that helps or not.
The only mention I could find was on this Icelandic website. Notably, it makes no reference to his nickname that I could discern. And it speaks of him favorably.
This is as best as Google Translate would do:
Olvir nice man named Norway; He was a great viking. He did not throw the children of the spearhead, who was Vikings frequently; because he was a man called children.
You link to the text of Landnámabók, written in the 13th century. A better translation of the text you refer to could be:
Ölvir barnakarl was the name of an excellent man in Norway; he was a great viking. He did not have children thrown around by spears, which was common for vikings at the time; therefore he was called babies-man.
The text should be taken cautiously though, since it refers to a man that probably died near to 400 years earlier.