The excellent (free trial) IcoFX allows you to create and edit icons, including multiple sizes up to 256x256, PNG compression, and transparency. I highly recommend it over most of the alternates.
Get your copy here: http://icofx.ro/ . It supports Windows XP onwards.
Windows automatically chooses the proper icon from the file, depending on where it is to be displayed.
For more information on icon design and the sizes/bit depths you should include, see these references:
