I need help, please, from the Chipboard computer pros out there.

Is there a way I can change the icons on my desktop shortcuts with Windows XP? I've right-clicked and gotten properties, change icon but there are only 4 choices there. When I browse the icon file I get tons of file names, very few of which I can recognize, put there by Dell.

I'd like to use perhaps my personal chip as an icon for the Chipboard etc. Can one convert bitmap or jpeg files to icon stuff? If so, how and what size to they have to be to work as a decent icon? Thanks so much.