I built a PHP .ico viewer a couple years ago. It used ImageMagick to do the conversion. One tricky bit is that an ICO can contain multiple frames, so you have to decide which one to display, or display them all. My script did the latter. I'll clean it up and attach it here. Maybe it'll help someone implement this feature for Mantis.

The normal attachment pictures they use are 16x16 256 colour gifs, so presumably you'd use the frame that was closest to that

I agree that it would be nice to do that. However, I think the proper way to do that is to have some form of extensibility for file previews. Such extensibility should provide a way where a plugin can be added to handle certain file type, e.g. flash, icons, etc.