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Icon editors
An overview of available icon editors:
 
Icon editors
For working with icons we've mostly got shareware titles for you, all are premium quality. While these are all very good, latest freeware releases below have done some catching up:
Starting with the default, MicroAngelo. Expensive, but you get a very complete suite of applications here, anything you can imagine concerning icons. An editor, one for cursors/animation too, an librarian and explorer (to suck icons out, and with the editor, to edit all kinda icons and last, the "On Display" component, which lets you change system icons and have them animated - when selected - on the desktop. Professional and just plain good... plus, can do 32-bit icons (XP).

But there's cheaper alternatives, like the EasyApps suite, containing an editor (cursors/animation too) and explorer/librarian. Only thing missing is a tool for configuring your system icons (but there's a great freeware tool to do it). Affordable, and now up to date with XP!

Which also goes for Axialis. "With Axialis IconWorkshop, you can create, load and save all Windows® Icons (ICO) and Icon Libraries (ICL). Now, it supports the new Windows XP Icons with Alpha Channel images (a.k.a. Smooth Transparency).
Also, with this new version you'll be able to read Macintosh® Icons and convert them to Windows® format in seconds." Yep, it has all icon options inside (though that conversion is not working yet for me...).

Iconforge is now fully up to date with icon formats. All options (editing/cursors/librarian) inside. The icon configuration comes with "ActivIcons", a free application shipped with it (or freely available at their site).

And there's ArtIcons. You get a really good editor and librarian, additionally, "ArtCursors" ships seperately, no system icons configuration. ArtCursors has no options for animation :(. Can do 32-bit/XP icons, there's even a specialized editor available, IconXP.
Ok, the freeware alternatives. Here's two decent, simple editors, usable for most operations, and both do alphablended icons too (!):
[*toptool:] A nice, but advanced editor is SnIco Edit, pleasing interface, easy to use. Latest version adds support for XP/Alphablended icons!

Takes some time to figure out, but you can use alphablending per pixel with @icon sushi, and for free (thanks to Bill Mudd for the link)!

Note: this leaves us with little gap, no options to create an animated cursor. MS provided a free tool in several reskits once, AniEdit (28 kB). You'll need to provide the seperate frames by yourself though. Bit of a hassle, but when you think about it, this actually puts you in charge of weight, opposed to some tools that render them automatically. Control over animation is very good.
Related tools
[*toptool:] We need to mention Iconshop. Icon viewer/archiver, but has conversion options, can extract icons out of files and lots more. Great companion for most of icon jobs done.
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