Well, I started mine, using the "picturebox as a pixel" aproach, wich is quite slow even if we use the IDE to place the controls....To Ease things up a bit I created an "control array creator" in wich I placed the nr of row and colums and the size of the control and gap between controls, and the "addcontrol" was added to a file in IDE format, so I just neede to copy its content to the project sbp file using a text editor....
For the colors I was planning on using a 3 slider solucion, and after a quick search, i founsd out that a 256 palette is a "normal" palette but with a 51 (or 52, not sure)bit separation of colors, so should be too hard to implement...
As you say, an ico file also stores the color palette, but when creating a new icon, there iss no color palette defined, so keep that aalso in mind, you will need to generate the palette...
Unfortunatly, and thankfully, due to my new job (

) I now don't have as much free time as I did...So probably won't be able to enter the compettition...
Maybe the next one....