However, the opposite could be true for your users. I find animated favicons distracting, intrusive and annoying, especially since I have no option to stop the animation.

Doing a little search on favicon best practices pulled up these interesting statements

"Fortunately, favicons created in .ico format may encapsulate multiple images, including unique instances of 16×16, 32×32, and even larger resolutions. This is beneficial when image-scaling may compromise the readability of your favicon. Whereas .gif and .png formats may scale down without loss of image quality, the converse certainly isn't true."

"Create a multi-resolution favicon with two images. One image should be 32x32 and the other 16x16. Both 256 colors (stick to Windows Default Palette). Reason: In some browsers, you can drag the favicon to the desktop where it becomes a link. Often, this desktop icon is 32x32 pixels."

So while yes, you are correct that they aren't required to be a certain format or size, you'll get better compatibility in all browsers if you stick to the best practices and acceptable standards.

Agreed about the annoyingness of animations. I hate animated icons, they are purely distracting for me and it would make me not want to bookmark a site, same can be said for many users. You want something that is simple and easy to identify - look at the C5 favicon, it is simple yet distinctly C5 and stands out.

Is there a reason to upload something bigger? From my limited understanding the browser is going to downsample it anyway, right?