This is pretty basic, but it works can even do some decent
transperancy. I use paintshop pro and save to photoshop image format and then open up icon sushi to turn it into an icon. Remember to keep the image small of course and in the proper icon dimension you want. Also doesn't support a lot of advanced features in photoshop or paintshop pro so keep your images without too much fancy stuff.
Doesn't save to cursor file format though... Ah... the pleasure of doing a google search is up to you on that