You can put an ico file (or a set of ico files) anywhere you like...
Do not ever try and modify dll's unless you really know what you're doing. they contain executable code for other apps, windows itself requires some of its own to run... you do that and you could kill your system.
Easiest way I know to change icons for folders n stuff for XP (i'm just saying XP because thats what I use), is a program called
StyleXP, it has a bunch of options for changing theme releated things, I dunno if
Windowblinds has that feature (for non-XPers).
Heres a shot of how its done in XP for shortcuts.. its pretty straight forward this stuff.