I'm sure this is probably very old school news but I've only recently come across this free Favicon generator tool by DynamicDrive. It allows you to convert any image in either Gif, Jpeg and PNG formats, with transparency if required, into a proper icon.http://tools.dynamicdrive.com/favicon

There are two more I haven't tried yet but look good too:

http://www.dagondesign.com/tools/favicon-generator-tool
http://www.graphicsguru.com/favicon.php

Now there is no more excuse not to create a Favicon for your site!

Favicon away my friends!