IconFactory just released IconBuilder 8.0 with support for icons up to 1024x1024.
What's interesting is that an ICO containing only a 512x512 32bit icon is about 1mb. Consider what will happen to an application like Word that has about 16 different document icons contained in the executable, along with the actual app icon. Word is 11.76Mb now, so if all the icons are updated to the hi-res format that Tiger now supports, the file size will more than double!
I think this is a good argument for moving to something like scalable vector icons, which Microsoft has announced for Vista, but hasn't yet added support for. (Beta 1 only supports ICOs up to 256x256).
It would make sense to treat icons like fonts were handled in the early days of the Mac. Bitmaps for low-res (screen) versions and then anything bigger than 128x128 uses a vector. This could be a performance hit on the processor, but I imagine that would easily be handed off to the graphics card.