Using GIMP 2.6.11 on windows, I was able to get pp to recognize and use an icon using the following settings:

48x48 canvas size image. I just saved a single image instead of the multilayer image for all the different sizes.

Save as .ico

8 bpp, 1-bit alpha, 256-slot Palette, no PNG compression.

Doesn't quite blend in on windows 7, but at least it's not the camel. PP needs an update to take advantage of the current .ico format, but I'm 99% certain I don't have the chops to do it.