Making favicons with photoshop or one of those online utils can be a really slow process, and a lot of the time it is hard to tell before you start whether an image will work at 16x16 pixels.
Heres a quick way.
Make a fairly small version of the image. I made on at 50x50 pixels (it was originally gonna be an avatar). Host it on a page on its own. Then bookmark it and put it on the bookmarks toolbar in FF. Firefox makes a 16x16 version for you. Then do a screen grab and cut out the icon, and save as favicon.ico
[edited by: tedster at 4:48 pm (utc) on April 4, 2008]