I thought that it was time for a blog post which is actually useful for other people. It seems that most people reach this site via search engines by searching for solutions to their problems.
So, if you are still looking for a good icon editor for Windows which supports alpha transparency and doesn't cost a cent, you should definitely take a look at IcoFX. I've been using this program for some years now and I'm very happy with it.
I can't say much about the editing features such as brushes, pencils and the like because there is one particular feature of IcoFX which makes all these tool useless: PNG import.
That's right. You can simply create your icon in your favorite graphics editing software, save it in PNG format with full alpha transparency and import it into IcoFX.
You can then either use the import feature to import more graphics in different resolutions and different color depths into the same icon file or you can use the editor's built-in convert functionality to create new "sub-icons" from already existing icons.
IcoFX can also export icons as BMP, JPEG, PNG, GIF or JPEG2000 and extract icons from DLL files like shell32.dll or EXE files.
The built-in resource editor allows it to replace icons in program files.
What are you waiting for? Go, get it.
IcoFX was meanwhile renamed "The Professional Icon Editor" and turned into a commercial product.
The regular price is now $59 and there currently is a sale discount of 15% resulting in a price of $49.
Related Link: IcoFX - The Professional Icon Editor