It doesn't even have to be an ICO file if you use the following LINK tag:
Code:
<link rel="shortcut icon" type="image/x-icon" href="/favicon.ico" />
The type attribute could be changed to image/gif, image/jpeg, etc., and it would still work as long as the image was 16x16 pixels.
If you
must have it in ICO format and your paint program doesn't have an ICO export ("Save As...") filter, here's an online PNG-to-ICO converter:
http://www.degraeve.com/favicon/