Pixelformer is a free advanced icon, avatar, and button editor giving you full control over each and every pixel. You can create professional quality icons and bitmaps using this tool since it has been optimized for creating and editing small-sized images.
Below is an example of creating a fish icon of 128×128 pixels in size.
Click the above image to enlarge.
It has all options that are needed in a professional image editing software. There are no restriction limits for image dimensions, has multi-layer support and also supports different color depths up to 32bit RGB. Apart from this, It supports multiple image formats and has a build-in icon extractor. Also it can optimize icons for Windows Vista and Windows 7. With such a bunch of advanced features and functionalities the tool is only 880kb in size. It currently supports all versions of Windows from 2000 and onwards. Enjoy!