Bad etymologies are plenty common throughout internet. Alas, they are often used to support all kinds of bullshit - religious ideas, nationalist ideas, conspiracy theories, downright magical ideas as well as things related to Atlantis and Mu. (Sometimes, alas, they are also used by rationalists and skeptics who fail to understand linguistics, a topic about which I will probably write a post at some point.)
Let us look at one instance that showcases the kind of bullshit that Sanskrit-cranks keep producing. Alas, the subcontinent is a place where pseudoscience and magic thinking prospers.
Searching for some etymologies that have appeared elsewhere in my research, I also happened to find this pearl of undiluted bullshit.
Wikipedia has offered a rather contrived origin for Reykjavik. It goes like this: "The first permanent settlement in Iceland by Norsemen is believed to have been established in Reykjavík by Ingólfur Arnarson around AD 870; this is described in Landnámabók, or the Book of Settlement. Ingólfur Arnarson is said to have decided the location of his settlement using a traditional Viking method; by casting his high seat pillars (Öndvegissúlur) into the ocean when he saw the coastline, then settled where the pillars came to shore. Steam from hot springs in the region is said to have inspired Reykjavík's name, which loosely translates to Smoke Cove (the city is often referred to as the Bay of Smokes or Bay of Smoke)." There's no mention of the language in which smoke cove is reykjavik. Since the mind tends to associate hot springs with the place, somehow the explanation seems credible. But is it? [Name Theories, Anantha]
Although the story presented in the ancient account may be exaggerated, that has no relevance to the etymology. The story does indeed appear in the Landnámabók. The author of the post, Anantha, seems to be rather incapable of any research of his or her own. Even a little bit of imagination would suggest that maybe looking at the history of Icelandic would be relevant? And, as it turns out, Icelandic is (as far as grammar and lexicon goes) a very conservative descendant of Old Norse.
Which other language could it even be? The only other group we know to possibly have settled Iceland - and in small numbers at that - are some monastic Celts. Reic-, as it happens, does mean something in Old Irish (which basically is the relevant version of Celtic for this purpose): reic - sale, sell, also of bards reciting poems in exchange for reward, reich - reach, fall to, and as noun 'class, kinds', réic - roar, howl, and if we're going to be way too permissive, we could also grant reite - reconciliation - as a bad and unjustified Irish alternative. Neither of those really seem to fit a place that has no large wild animals, in medieval times never was a place of great commerce, nor is known for any great acts of reconciliation, positing such an etymology is unnecessary and would be an unlikely claim at that. The -vík bit could be explained by an Irish etymology though (ùic), but that etymology would go back to Old Norse anyway, as that word is a loan from the Norse vikings.
If we do go and look at modern Icelandic - which was strictly speaking not spoken at the time that Reykjavik was named and settled - as well as Old Norse (which is the ancestor of, and very similar to modern Icelandic and therefore the most natural hypothesis), it turns out reykja, in both, signify 'to (emit) smoke'. It has reflexes in the other Scandinavian languages as well, Swe. röka, ryka dialectal röyke, röyk, ryk, Danish ryge, røge, Norwegian røyka, røykja, røykje, røyke, Faroese rúka, with -ey- in many of the other inflected forms, such as reyk - 1st and 3rd person singular past tense, reykst - 2nd person singular past tense.
Finding reliable sources on this might take some time in case you don't have suitable books available. As it happens I make sure to have grammars of all Scandinavian languages accessible.
Wiktionary, however, also gives most of those forms (dialectal and norwegian variations may be omitted there, though - Nynorsk especially being a language that permits a lot of variation in its morphology) and even a very non-thorough perusal of wiktionary - checking translations for 'smoke' would give you links to several of these languages.
Anantha should also have checked what bay or cove perchance is in modern Icelandic, Old Norse, etc. It turns out vik and vík basically appear in all the Scandinavian languages, and Icelandic is one among them. As it turns out, even in modern Icelandic, Reykjavík is a meaningful compound. Anantha positing multiple etymologies in a language foreign to the country just shows what a retarded methodology Anantha uses - you can always create something that looks like a meaningful phrase if you get to distort a word willy-nilly. Alas, people do take bullshit like this seriously and do not understand to be sceptical about claims like this.
No, Sanskrit has not influenced names on Iceland and to understand the name of every single place in Iceland, Old Norse and even largely Modern Icelandic suffice. Not only do they suffice, they are almost the only tool needed - possibly with a tiny few Gaelic words as a complement.
The dumb shit here is that Anantha is basically teaching people to be credulous, and accept anything as true if it is phrased as though it has supporting evidence - even when the supporting evidence is tenuous and based on complete and utter ignorance. What makes it even worse is the sheer amount of evidence in favour of the mainstream explanation - it is clear Anantha hasn't even tried looking up the evidence. Heck, he or she is so uninterested in evidence, that in fear of finding any meaningful evidence he or she does not go looking for any - and therefore cannot even by accident stumble in the general direction of the real explanation.
Not only Anantha is guilty of this, though, but so is D.M. Murdock, so is Barbara Walker, so are a bunch of ignorant but excessively prideful nationalist, so are ancient aliens "theorists", religious blowhards, Sanskrit-primacists and other Sanskrit-is-magic believers and anyone else who uses fake etymologies to prop up their arguments.
 Old Irish, Irish and Gaelic words from http://www.ceantar.org/Dicts/MB2/mb30.html#MB.R
 and from http://edil.qub.ac.uk/dictionary/index2.php?letter=R&column=30
 Given that words related to smoke are fairly common, you are likely to find the given words for the different languages in any medium-sized or larger dictionaries of the scandinavian languages. Dialectal forms such as "röyk" are first-hand knowledge, but descriptions of the sound changes that Ostrobothnian Swedish has gone through can be found in the literature. Alas, I currently do not recall which books get into that, but as it is my native dialect, that kind of informs my knowledge quite a bit.