(copied from the Telerik Admin response in this thread: http://www.telerik.com/community/forums/sharepoint-2007/full-featured-editor/problem-with-iconurl-property-in-toolsfile-xml.aspx
The iconUrl property is not supported by RadEditor for ASP.NET AJAX because it has new toolbar architecture based
on image sprites. Please, remove the iconurl
property from the respective ToolsFile.
Note that, the new RadEditor use a new client-side model, semantic rendering, and many other innovations such as the use of css image sprites, it delivers minimal and well-formed output. It’s new rendering and architecture allows it to be a couple of times faster than the classic ASP.NET Editor.
To set an image to a custom tool you should provide image files for it and declare the following CSS class:
You can find more information on the following documentation page: Adding Your Own Buttons.
Hope this helps!