Seanau Icon Toolkit is an easy-to-use free icon editor.
At its simplest, you could use the program as a basic converter, opening an image in a regular format (GIF, JPG, PNG, BMP) and saving it as an ICO.
You could also use the drawing tools to create something from scratch, although these are relatively basic, just a few shapes with optional gradient/ radial fills.
What's more interesting is the Layers tool, which allows you to blend multiple icons together.
The Style menu changes the look of your icons with a click. Options include iOS, Origami, Mac, Vista and Crystal. Don't get excited, these don't do anything radical - sometimes they don't seem to do anything at all - but you can always undo the results if you disapprove.
There are some alternative Style options which might be more useful, like adding a reflection or a drop shadow, and your work can be further tuned with sliders for Hue, Saturation, Brightness and Contrast.
We wouldn't use Seanau Icon Toolkit to create brand new icons, but if you just want to import an existing image and apply a few effects then it works well enough.