Similar to the favicon, I just discovered that an icon can only be 8 x 8. This applies to the menus and possibly anything else that uses an 'icon', whereas the Content->Unordered List is happy for me to use my 12x12 image as a bullet. This restriction seems fairly arbitrary.
Is there a 'templating' reason that icons can only be 8x8? Surely from a design perspective, the user should be able to have more flexibility both in size and shape (not just square). Sure, the user could shoot themselves in the foot, but since they can do that in so many other ways anyway, it would seem odd to restrict creativity for the sake of daft users in this fairly minor instance.
Cheers
R