The 2-0 defeat in Reykjavik continued a rocky start to Hiddink's second stint in charge of the national side, with the Dutch third in Group A - six points off joint leaders Czech Republic and Iceland.
Gylfi Sigurdsson's brace condemned Netherlands to a second defeat of the pool and Hiddink struggled to explain why his side have struggled after performing so well under Louis van Gaal at the World Cup.
Under the Manchester United manager, the Dutch finished third in Brazil and Hiddink has been frustrated at the team's inability to continue that momentum into qualifying.
"I'm not angry but disappointed," he is quoted as saying by De Telegraaf.
"I do not know where the feeling of the World Cup has gone. We must look at the state of affairs in Dutch football."
In-form Swansea City midfielder Sigurdsson struck twice in the first half, including a 10th-minute penalty and Hiddink feels his side were too slow to react at key points in the match.
"We shot ourselves in the foot with another early goal," he continued.
"Three or four boys from Iceland were concerned with Arjen Robben and we did not take advantage. We did not move to the game to the other side. There was a lack of tempo to get people free."
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