Unfortunately, we don't know. Firstly, we don't have anything written by Icelanders until over a hundred years after they convert to Christianity, and 250 years after Ingolfur Arnason started the so-called "Settlement Ages" in roughly 874.

That being said, we've got a problem - even after we start having written literary texts written in the 13th century about the 9th and 10th centuries, we still have basically nothing! The Northern Lights are one of the baffling absences of medieval Icelandic literature (the other being Icelandic volcanic eruptions!) That being said, it's worth noting that, given that very wealthy Norwegians lived in modern Trondheim or farther north, the Northern Lights would have been seen since time immemorial in at least parts of Scandinavia - Iceland wasn't unique in having them.

In this interview, Armann Jakobsson posits that the reason why is that the stories are very much focused on human psychology and conflict, a la Jane Austen (which informs his interpretations of trolls and other monstrosities in the sagas as well). The Northern Lights are a very frequent occurrence in Iceland, but weren't connected to omens or human trauma, and so just exist as a (very dramatic) backdrop implicit in the landscape descriptions that frame the human actions of the sagas.

So, regrettably, yeah, the answer to your question is well and truly "we don't know."