<p>I'm looking to create <code>favicon.ico</code> files programatically from Python, but PIL only has support for reading <code>ico</code> files.</p>

Perhaps the following would work:
Generate your icon image using PIL
Convert the image to .ico format using the python interface to ImageMagick,
PythonMagick
I have not tried this approach. The ImageMagick convert command line program was able to convert a .png file to .ico format, so at least ImageMagick supports the .ico format.