I have created a new Windows shell context menu item using registry and keys
HKLM\\Software\\Classes\\Folder\\shell\\appname
HKLM\\Software\\Classes\\Folder\
Windows 7 added support for icons (and submenus) for static (registry) verbs, add a REG_SZ value named "Icon" under HKCR\%ProgID%\shell\%verb%
On <= Vista you need a shell extension that implements IContextMenu, see this blog entry for information about which icon/bitmap formats you can use...