There is nothing wrong here, when you first upload a new Favicon if you look around on the page when it says, "Upload New Favicon" you will notice it says please give time for it to register your new Favicon. Now it says, .ico files work best so here's what you want to do. Either make your own custom Favicon, or get something off of Google Images. Find a fairly small picture and save it to your desktop. If your on a Mac, right click it and choose "Get Info", if your on a PC right click it, and choose "Properties" from these to things you can rename the extension to whatever you want. Make the extension .ico and then, upload it to your site and actually give it a couple of days and if you did that correctly it will work. If you want to see what it looks like check out my Forum. If you look up in the address bar you can see my Favicon, and this is what I did to achieve it.http://pcandmactutorials.freeforums.org
I hope this helped you.