Okies, this is my first attempt at writing a tutorial for mass consumption, and I may have jumped headlong into the deep end by starting with an animated one... but here goes anyway.
Our finished product, made using PS7 and Adobe Image Ready:

I'm trying to make it comprehensible to even those with very little experience with either photoshop or imageready, so please forgive me if I go over anything everyone already knows.
Oh, and it's a bit image heavy, so I'm cutting it.
We're starting with this photo of Squall from Final Fantasy 8:

Then we crop, sharpen, and resize it to 100X100 (making sure to change the resolution to 72 pixels/inch if necessary), and end up with this as a base:

I'm unusually happy with the way the lighting in this pic looks already, so we leave that alone, and jump right into a gradient. I made this gradient specifically for this icon, because I'm picky that way. Feel free to take and use it if you'd like.

I set the gradient layer here to 50% opacity, changed the blending mode to 'overlay', and ended up with this:

Just as a pointless side note - I almost always start out my gradient layers at somewhere around 50% opacity, and then decide whether it needs to be lighter or darker from there.
Next, we start work on what will eventually become the animation.
We begin by selecting the layer with the picture again, instead of the gradient; and then give ourselves a little more room to work with by zooming in a few times. Then, use the magnetic lasso tool (which one chooses by right clicking on the lasso tool, and selecting the magnetic lasso from the list offered), to outline as much of the flame as possible. This is not exact work by any means, though, so don't even try to make it perfect. That looks something like this, when everything is selected:

Once the selection is made, right click on it, and choose 'layer via copy' from the menu. We then select the new layer on the layer palette, right click on it, and select 'duplicate layer'. Repeat that once more, leaving us with three layers of just the flame part of the pic.
Now comes the complicated part, if any part of this icon could be considered complicated. Making the top two flame layers invisible, we go to work on the bottom one with the dodge tool. (the dodge tool is the icon on your toolbar that looks like a black magnifying glass) I have my dodge tool set on about 40% exposure for this. Select a brush that's about ten pixels wide, and starting in the bottom right-hand corner, use the it to make that bottom part of the flame noticeably lighter. You can run the tool over one specific spot repeatedly, in order to make highlights. We then select the next flame layer, and use the exact same technique, but on the center portion of the flame. Then, once again moving up a layer, lighten the top part of the flame. So that's it... that's the hard part.
Here are our layers, each one shown separately on top of the pic itself.
1.
2.
3.
Then, the last touches in Photoshop. Add a new blank layer to the top of the pic, and use a simple square border brush. (this one is just a 96 pixel square, which can easily be made or found anywhere) And last, add text. (I used the 'papyrus' font here, the 'S' in 30pt, and the rest of the letters in 18pt.)
This is where we head over to Image Ready, with our layer palette looking something like this:

Believe it or not, the next part is a breeze.
Once Image Ready loads...
Our first objective is to to create the base animation. To this end, we make the three flame layers invisible, leaving everything else as it was. This is now officially the first frame. Then, by clicking on the 'duplicate current frame' button on our animation palette, circled in this pic,

we create a second frame. The only problem with it is that it's currently exactly the same as the first frame, so no animation... This is a problem easily fixed, though, by making the first flame layer visible, with only the second frame selected on the animation palette. We now have two frames on the animation palette. To make the next frame, simply select the second frame on the animation palette, 'duplicate the current frame' again, and make the second flame layer visible in that third frame. Finally, repeat the process one last time, duplicating the third frame, and making the third flame layer visible in that fourth frame.
Bleh... frames and flames... I'm confusing myself...
If you've managed to follow my stilted instructions up to now, you now have a rudimentary animation.
If we leave it as is, though, the animation is very choppy, and it scrolls through nearly too fast to see. So the next objective is to make the animation a little smoother, and stretch it out a bit. So, selecting the second frame on the animation palette, we hit the 'tween' button, which is circled in this pic,

And it brings up a menu that looks something like this:

All of the correct options are already selected in the picture above. We have the second frame selected, and want a tween with the first, thus previous, frame. Two frames should be plenty to make the animation smoother, and since every frame I add makes it a little slower, this will help with that problem, too. The only parameter we need selected is 'opacity', because we only want to move smoothly from one layer to the next. (the 'position' and 'effects' parameters are for other kinds of animation, like scrolling text)
Once we have the first tween finished, the second one is a snap. Since the original second frame (now the 4th frame) should still be selected, we only have to hit the tween button again. Changing only the first selection, tween with, to 'next frame' instead of 'previous frame' on the drop-down menu. Now that all but the last frame is 'tweened', we simply select the last frame, which should be number eight at this point. The 'tween with' selection should automatically have changed back to 'previous frame' on the tween menu because this is the last frame, so just hit ok.
After that, all that remains to be done is 'Save Optimized As...', and we have our very own flame-animated icon.
Any input and/or comments would be forever appreciated... Was this even remotely helpful? Completely incomprehensible? Painfully condescending?
Finally, if anyone wants to use the icon, just ask
whiteravensong, whom I made it for.
Our finished product, made using PS7 and Adobe Image Ready:

I'm trying to make it comprehensible to even those with very little experience with either photoshop or imageready, so please forgive me if I go over anything everyone already knows.
Oh, and it's a bit image heavy, so I'm cutting it.
We're starting with this photo of Squall from Final Fantasy 8:

Then we crop, sharpen, and resize it to 100X100 (making sure to change the resolution to 72 pixels/inch if necessary), and end up with this as a base:

I'm unusually happy with the way the lighting in this pic looks already, so we leave that alone, and jump right into a gradient. I made this gradient specifically for this icon, because I'm picky that way. Feel free to take and use it if you'd like.

I set the gradient layer here to 50% opacity, changed the blending mode to 'overlay', and ended up with this:

Just as a pointless side note - I almost always start out my gradient layers at somewhere around 50% opacity, and then decide whether it needs to be lighter or darker from there.
Next, we start work on what will eventually become the animation.
We begin by selecting the layer with the picture again, instead of the gradient; and then give ourselves a little more room to work with by zooming in a few times. Then, use the magnetic lasso tool (which one chooses by right clicking on the lasso tool, and selecting the magnetic lasso from the list offered), to outline as much of the flame as possible. This is not exact work by any means, though, so don't even try to make it perfect. That looks something like this, when everything is selected:

Once the selection is made, right click on it, and choose 'layer via copy' from the menu. We then select the new layer on the layer palette, right click on it, and select 'duplicate layer'. Repeat that once more, leaving us with three layers of just the flame part of the pic.
Now comes the complicated part, if any part of this icon could be considered complicated. Making the top two flame layers invisible, we go to work on the bottom one with the dodge tool. (the dodge tool is the icon on your toolbar that looks like a black magnifying glass) I have my dodge tool set on about 40% exposure for this. Select a brush that's about ten pixels wide, and starting in the bottom right-hand corner, use the it to make that bottom part of the flame noticeably lighter. You can run the tool over one specific spot repeatedly, in order to make highlights. We then select the next flame layer, and use the exact same technique, but on the center portion of the flame. Then, once again moving up a layer, lighten the top part of the flame. So that's it... that's the hard part.
Here are our layers, each one shown separately on top of the pic itself.
1.

2.

3.

Then, the last touches in Photoshop. Add a new blank layer to the top of the pic, and use a simple square border brush. (this one is just a 96 pixel square, which can easily be made or found anywhere) And last, add text. (I used the 'papyrus' font here, the 'S' in 30pt, and the rest of the letters in 18pt.)
This is where we head over to Image Ready, with our layer palette looking something like this:

Believe it or not, the next part is a breeze.
Once Image Ready loads...
Our first objective is to to create the base animation. To this end, we make the three flame layers invisible, leaving everything else as it was. This is now officially the first frame. Then, by clicking on the 'duplicate current frame' button on our animation palette, circled in this pic,

we create a second frame. The only problem with it is that it's currently exactly the same as the first frame, so no animation... This is a problem easily fixed, though, by making the first flame layer visible, with only the second frame selected on the animation palette. We now have two frames on the animation palette. To make the next frame, simply select the second frame on the animation palette, 'duplicate the current frame' again, and make the second flame layer visible in that third frame. Finally, repeat the process one last time, duplicating the third frame, and making the third flame layer visible in that fourth frame.
Bleh... frames and flames... I'm confusing myself...
If you've managed to follow my stilted instructions up to now, you now have a rudimentary animation.
If we leave it as is, though, the animation is very choppy, and it scrolls through nearly too fast to see. So the next objective is to make the animation a little smoother, and stretch it out a bit. So, selecting the second frame on the animation palette, we hit the 'tween' button, which is circled in this pic,

And it brings up a menu that looks something like this:

All of the correct options are already selected in the picture above. We have the second frame selected, and want a tween with the first, thus previous, frame. Two frames should be plenty to make the animation smoother, and since every frame I add makes it a little slower, this will help with that problem, too. The only parameter we need selected is 'opacity', because we only want to move smoothly from one layer to the next. (the 'position' and 'effects' parameters are for other kinds of animation, like scrolling text)
Once we have the first tween finished, the second one is a snap. Since the original second frame (now the 4th frame) should still be selected, we only have to hit the tween button again. Changing only the first selection, tween with, to 'next frame' instead of 'previous frame' on the drop-down menu. Now that all but the last frame is 'tweened', we simply select the last frame, which should be number eight at this point. The 'tween with' selection should automatically have changed back to 'previous frame' on the tween menu because this is the last frame, so just hit ok.
After that, all that remains to be done is 'Save Optimized As...', and we have our very own flame-animated icon.
Any input and/or comments would be forever appreciated... Was this even remotely helpful? Completely incomprehensible? Painfully condescending?
Finally, if anyone wants to use the icon, just ask
