Um, instead of going through all of the trouble (because personally, i think it's the image just being a bitch) just make the icon yourself using the image
Button manager
since your image isn't working right, use a "save image as" duplicate of it, and use that image to make an icon.
It'd be like making it all over again. Just, really easy.
Just try it, and if it works, than it was the icon. If not, it's probably some importing fail. :/