Heh... After all my fiddling, try these... I can't seem to make the jagged edges disappear, but I tried feathering it a teeny bit. The first ico file is a regular icon, the second (the copy) is a compressed png like what vista uses (according to the PS plugin I found anyway ;) ).
Mind linking me that plugin?
And to avoid jagged edges all together, if you cut it out, use the Pen Tool and then make a selection based of the path, always killed jagged edges for me. (I hope you don't mind me saying that.)