The hostel I stayed at in Reykjavik had open communal showers which were always busy, never saw anything other than guys having a shower though. They also had private showers which people always waited for, but I guess, like me, most of the guys either couldn't be bothered waiting or just didn't care if someone else saw their penis. I would guess that most hostels in Iceland are communal as they are more than used to showering nude in front of other people as it's mandatory to do so before setting foot in any of their public thermal pools (blue lagoon for example), so they do it from a young age.
The rooms were big and laid out quite well in that one could be seen from all the beds if one wanted to, but I wasn't really about showing off to people who, like me, were just there to sleep. As the dorms were mixed too, I did not think it appropriate to stroll naked or purposely show anything off. Each to their own though. I mean surely it depends on who you're sharing with. If it's all guys then none of them would probably care if you got your dick out while getting changed...mixed dorms and you may get a telling off.
I shared a hostel room in Croatia recently which had mostly teenage guys in it, so no one really cared what was on show. On my 3rd night though, 2 girls and a mother with 2 kids got put in the room, so it would have been out of order to stroll around in underwear or less, so we got changed in the shower room.
You can never tell with strangers what they will take offence to, so I always err on the side of caution in hostels and only get naked to get changed if I'm alone, it's dark or the other person/people have done it first, at least then I get the message that they are ok with nudity. I certainly don't go to hostels looking for anything other than a place to meet fellow travelers and share stories about my trips and gain inspiration for my future travel plans.
