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.

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.