It's a pretty easy process, though it'll take some hunting for an app that'll convert your final image to .ico format. Create an image in 64x64 dimensions, or 128x128. I used the former. I created this one above by creating a font with '160', squeezed the letters together by tweaking the "character spacing", then drew a red rounded rectangle and placed it at an appropriate position then selected the 160 and applied it to the rectangle as a mask. Layer styles Drop Shadow and Gradient did the rest.
I then used GIMP in Ubuntu to convert the final PNG file to ICO.
Next, I created an autorun.inf file. It's a file that tells windows what to do when you plug something in, or insert a CD. Windows checks the autorun.inf for definitions, such as the device's name if available, any special software it has and so on. It's the one that makes the computer attempt to install something when you plug certain modems.
I went into notepad and typed this:
Da160.ico naturally being the filename of the icon. I then saved as autorun.inf in the root folder along with da160.ico.
For more info on how to use the autorun.inf file, you can get some cool info from here: