Over-contrasted images

ok...i've been having this problem for a few hours now...i have an over
contrasted image i want to make into an icon...but whatever i do to it
i can't seem to make it look good...i tried different blendings,
desaturation and much much more...piccy under the cut....










edit: i use Adobe Photoshop but am pretty good at transfering tuts from PSP to PS