From time to time I need to create an icon, or edit an existing one. There are a huge number of tools out there for doing this sort of work, and Visual Studio 2005 itself has it's own icon editing facilities. Unfortunately, virtually all of the products I've tried have issues with transparency. While they all claim to support transparent backgrounds, and in fact most do most of the time, they usually produce icons whose transparency will disappear intermittently. It might only be when resources are low, or when the icon is displayed in Windows explorer, or perhaps only on the task-switch dialog (the one displayed when you press alt-F4 in Windows). In any case, it's annoying and not good enough in my opinion.
Luckily, there's one product I've found that consistently gets it right. Better yet, it does an amazing job of making icons out of existing bitmaps or jpgs, by allowing you to simply paste them from the clipboard into it's editor. The effect is particularly good for icons that are 32 x 32 and have 256 or more colours.
So, if you're wanting a good icon editor that does all the right things, try Axialis IconWorkshop 6.0.