Yes, the path is correct, otherwise it wouldn't show an image at all I believe. I figured it's a design element, not a content element so it should be in a clientlib. I tried it with a DAM asset which works fine, but that's not ideal I think. I'm just suprised it doesn't seem to work for .ico files but all other layout images we pull in from the clientlib folder (jpg, png, etc.) work just fine. It just seems to mess with the .ico files.
I realize there's plenty of work arounds but they don't really make it manageable in our build.