It has been reported that the favicon issue has been fixed.
This problem has been reported to Google. It may take some time for it to be fixed because there are probably more important issues that are being worked on.
Someone has posted a method to make favicons work. What you do is get your "favicon.ico", open it up in Paint then save it as a "favicon.png" then rename it to "favicon.ico". Then replace your favicon with this file.
See this thread.