[netmagik]

This worked for me:

Open skin1 > customer > meta.tpl

And add this code

<link href="/favicon.ico" rel="SHORTCUT ICON" />

- below the 5th row (under <meta http-equiv="Content-Type" content="text/html; charset={$default_charset|default:"iso-8859-1"}" />)

Then add your favicon.ico file (by the way, you can create these in photoshop by creating a 16 x 16 pixel image and then saving as a .ico file ( if you have created a 16 x 16px image/canvas the .ico option should appear in the filetypes list) - I am using Photoshop CS3.

Hope this helps!