That is a good question and one that scholars debate over for every single text.
As for the landnámabók (book about the settlement), it is relatively old. Written only about 100-200 years after the settlement and around the time when Iceland officially became Christian, that means in that time pagans were still around. There exist several copies of the landnámabók, showing different degrees of emphasis on Christianity. That doesn't guarantee pagan or christian sympathies of the author, but the probability of it being free of Christian bias is higher than in later medieval texts and the authors were certainly more familiar with the topic.
It is possible that the story of Ölvir barnakarl was exaggerated to make pagans look bad. It is also possible that it really was like that sometimes. We can't be 100% sure, but from what I've read in Old Norse sources, this level of violence was at least plausible. If you look at how viking raids were described by Britons, for example, you also have to take them with a grain of salt but they speak of insane amounts of violence. Let's not forget that we know for a fact pagan Scandinavians practiced killing of their own children in certain cases and Germanic tribes were known to sacrifice humans in desperate times.
But the truth is somewhere in the middle. Many viking trips didn't result in raids, they were just trading trips. Sometimes they practiced extortion, but sometimes they did raids. Surely some raping and killing and putting babies on spears did happen at least once or twice.