favicon.png vs favicon.ico - why should I use PNG instead of ICO?

Other than the fact that PNG is a more common image format, is there any technical reason to favor favicon.png vs. favicon.ico?

I'm supporting modern browsers which all support PNG favorite icons.

All modern browsers (tested with Chrome 4, Firefox 3.5, IE8, Opera 10 and Safari 4) will always request a favicon.ico unless you've specified a shortcut icon via <link>. So if you don't explicitly specify one, it's best to always have a favicon.ico file, to avoid a 404. Yahoo! suggests you make it small and cacheable.

And you don't have to go for a PNG just for the alpha transparency either. ICO files support alpha transparency just fine (i.e. 32-bit color), though hardly any tools allow you to create them. I regularly use Dynamic Drive's FavIcon Generator to create favicon.ico files with alpha transparency. It's the only online tool I know of that can do it.

There's also a free Photoshop plug-in that can create them.

Answer replaced (and turned Community Wiki) due to numerous updates and notes from various others in this thread:

• ICOs and PNGs both allow full alpha channel based transparency
• ICO allows for backwards compatibility to older browsers (e.g. IE6)
• PNG probably has broader tooling support for transparency, but you can find tools to create alpha-channel ICOs as well, such as the Dynamic Drive tool and Photoshop plugin mentioned by @mercator.

Feel free to consult the other answers here for more details.