Used to be, IE actually demanded you "favourite" the page before it would display a "favicon", but I can't imagine that's still the case with IE9 or 10.
most browsers look in the root for something called "favicon.ico" whether you've got one there or not, the source of many ignored 404's. Putting in the url to your favicon should prevent that wasted GET, and so long as you have a valid path, you can put the favicon wherever you want. The rel="icon" would have been enough, but some versions of IE only look for "shortcut". meh.