Tools you'll be needing:
Gimp
Sony's Custom Theme Converter (3.70 and above)
Sony's Custom Theme Converter (3.80 and above. Has Radio Icon)

Sony's Custom Theme Converter (4.00 and above. Has Google Search Icon)

PNGforPTF

Optional downloads:
Translated official manaul for Sony's Custom Theme Converter
The Original PSP Icons (if you want to recolor them or something)

We'll be using this RSS image I found on the internet for the tutorial:

Right click and Save the image to your hardrive then open it in Gimp.

1. First we need to make sure that when we are in Gimp we are always in RGB mode: Image -> Mode -> RGB. If you save the png in "Indexed Mode" it will look all messed up when you transfer it to the PSP.



2. Second we need to add an alpha layer, to do this go to: Layer -> Transparency -> Add Alpha Channel

3. Let's make the background completely transparent, click on the Fuzzy Select Magic Wand Tool . Then using the magic wand click on a white space in the image and hit your Delete key on your keyboard (or Edit -> Clear).


(Notice the checkerboard background? This means that those parts are now completely transparent.)

4. Resize this image to 48x48. Go to Image -> Scale In the next box that pops-up put 48 pixels as the width and height.



5. This step is very important, for some reason if you don't give the image at least a 99.0 opacity or less the icon will look all messed up on the PSP. Bring up the Layers menu by going to Dialogs -> Layers. Use the opacity slider to give it some opacity. I'm going to use 50% opacity, so it looks partially see-through on the PSP.



6. Save the image as a png. You'll get a message saying something about merging visible layers, just hit the export button and then the save button with default PNG options.



7. Now we need to convert the image to 256 colors 8-bit format. Run PNGforPTF and hit the Convert button.



8. Use Theme Converter and open the RSS icon as both the Icon Body and Icon Focus.



9. Fill out the rest of the required fields in Theme Converter such as Preview Icon (16x16 256 color png), Preview Image (300x170 24-bit bitmap), etc. and export as a PTF theme by going to File -> Export

10. Copy the PTF over to your X:\PSP\THEME folder and then change to the theme.


You'll notice that the icon is see-through, and if you select it you'll see that it has a ghostly glow.

Golden Rules of Sony's Theme Converter
Wallpaper
Wallpaper: 480x272 24-bit *.bmp

Category Icons
Icon Body: 64X48 256 colors *.png

First Level Icons
Icon Body: 48x48 256 colors *.png
Icon Focus: 64x64 256 colors *.png

Second Level Icons
Icon Body: 32x32 256 colors *.png
Icon Focus: 48x48 256 colors *.png

Others
Preview Icon: 16x16 256 colors *.png
Preview Image: 300x170 24-bit *.bmp


Icon Body: what the icon looks like when you are not selecting it.
Icon Focus: This image will appear behind the Icon Body and fade in and out when selected,


A large amount of pure black (R:0 G:0 B:0) or pure white (R:255 G:255 B:255) will cause theme converter to freeze. You need to replace these colors with almost black (R:4 G:2 B:4) and almost white (R:252 G:254 B:252). Gimp has a nice "Select By Color Tool" that will help you mass replace these colors.