This is how to make windows icon files with photoshop.
It is a simple process like just making an image but you need a plug-in.
Attached is the Plug-in.
How to Make a Cursor:
Learn to Make a Custom Cursor
Step 1: Open Explorer
Go to C:\Program Files\Adobe\Adobe Photoshop CS2\Plug-Ins\File Formats\
Put the plugin given at the beginning in there.
Then Open Photoshop
Step 2: Edit Like Normal File
Just make what you want the icon to be.
You probably want to start with a transparent background.
Step 3: Save As .ICO
Save the file as an .ICO file.
Step 4: Apply Icon
1.Go to a folder or shortcut and right click and press properties.
2.Then go to the customize tab.
3. Then press "Change Icon..."
4.Then find your icon and press ok through.
Step 5: Done
Look at that sweet Smiley Icon