Create icons from Photoshop
Adobe Photoshop doesnt have an option where you can save the image as .ico, one alternative was to save the image as a *.bmp and later rename it to *.ico but the main problem with this was that the icon size was unrealistically large. This plugin directly allows you to output the ico file from photoshop.

It supports multi-format icons, transparency and semi-transparency and allows making icons, which are compatible with Microsoft Windows XP and Vista. The plug-in also supports non-standard icons of different sizes and color resolutions, including monochrome, 16 colors, 256 colors, 24-bit True Color, and 32-bit True Color with semi-transparency. Customers have an ability to add and remove sub-icons from icons. The plug-in is compatible with all versions of Adobe Photoshop, including 3.0-7.0, CS, and Windows OS.
System requirements:
Windows 95/98/ME/2000/NT/XP/2003, Photoshop 5.0, 6.0, 7.0, CS/ Paint Shop Pro 9/ Photoshop Elements 3.0, 32MB RAM, Pentium-233 MHz, 1MB Hard Disk.
Download:
You can download this plugin here or here at Rapidshare.