The AC flight YEG-LHR is also overnight? Being direct it will certainly be quicker "point to point" but I recall that it is not a long connection in KEF so the time penalty is not huge. Also, if you are bringing jetlag into it, then jetlag can affect people on non-stop overnight flights too......
The Icelandair flights are an alternative to the AC flights - not quite as quick, but with the competitive fares that are available on Icelandair, some people will choose this alternative. It might not be an alternative that you would personally choose, but others will.
Remember that not all passengers travelling AC to LHR will just be going to the London area, others transit through LHR to other destinations - for example elsewhere in Europe or the UK. Icelandair will also work for a number of these destinations.
You mentioned that some passengers can fly or drive to Calgary to catch flights from YYC - agreed and this certainly happens now and likely will do in the future.
However, it isn't neccessarily a great option - if flying from YEG - YYC then onto LHR/elsewhere, you have check-in at YEG plus the short flight to YYC (30-40 mins?) then whatever "cushion" applies between arriving at YYC and continuing on "over the pond".
If you drive from Edmonton to Calgary, in decent conditions it is about 3-3.5 hrs and if the roads are bad it would be longer. Add on check-in time for your international flight from YYC, and you are departing home approx 5+ hours before your flight leaves YYC. Plus you have the "joys" of Hwy 2 and the crazy Alberta drivers!
So, the Icelandair flights from YEG could be a feasible option for travellers (especially if their pricing is competitive), as opposed to taking AC's indirect options to LHR and beyond.
Clear enough?