I have heard it said that the favicon appears and disappears at random due to some IE bug, and saw it mentioned in the favicon converter instructions. There may be a bug, but if your URL includes the full path to the default page, the icon will show, if it does not then it won't.
"http://www.mysite.com/" favicon probably will not show
"http://www.mysite.com/index.htm" it will show on the navbar.
I hope this helps. Thanks for all of the great tools.