This seems like a really old bug. It doesn't happen for me in Squeeze... I can select any .xpm or .ppm on the filesystem for a custom launcher.
However, there is one weirdness about this bug report, that the reporter says they are clicking "Browse...". But that button is for browsing for a specific command, not an icon. Since graphics files are not executable, they would be greyed out. You have to click on the icon itself in Launcher Properties to pick a new icon. Mark -- To UNSUBSCRIBE, email to debian-bugs-dist-requ...@lists.debian.org with a subject of "unsubscribe". Trouble? Contact listmas...@lists.debian.org