Desktop icons corrupted in Windows 7, how do I fix this?

"I'm adding another answer, because my new theory is that the document overlay over your icons is actually the arrow symbol, added by default to icons, that was somehow replaced by some software that you installed.

You can use the free Vista Shortcut Manager to try this theory out:

Vista Shortcut Manager is a small
utility to remove/manage the arrow
symbol on your icons and either remove
them or replace them with some other
custom graphic, you can also remove
that shortcut to prefix in the text of
any shortcut that windows makes.

It can be used by people looking for
removing those ugly looking arrows on
shortcut icons without editing
registry or having to do some complex
manipulation with system files and it
comes in both 32-bit and 64-bit
variants"

"I've never seen such a problem, so all I have to offer are guesses.
Please create a system restore point before trying out the following ideas, just in case.

First try:
Right-click on the desktop, choose Personalize, then Change desktop icons, and then click on Restore Default, then logout & login (or reboot).

Second try :
Rename the file IconCache.db located in C:\Documents and Settings\User Name\Local Settings\Application Data and reboot. It will get automatically rebuilt.

Third try:
Download the Windows 7 tweaking program Ultimate Windows Tweaker, and see if it helps you find some abnormality."

For the Taskbar, a simple solution is to change icon size. Right-click the Windows Start icon on lower left corner of screen. Select Properties, then Taskbar. Uncheck "Use small icons." Icon bitmaps will be restored. However, this doesn't cure mangled icons in Explorer.

Slightly different problem & fix: This was in Win7. Suddenly a number of my desktop icons and all of my start menu icons all pointed at and if clicked would only start file X; in this case an executable file. The solution was to uninstall file X, delete the icon cache as others here suggested, reboot the machine and my icons were restored. I then reinstalled program X and have had no problems since. I don’t know if this will work, but I’m keeping a spare copy of the icon cache to try and restore it if this happens again. Never would have gotten this without the "delete the icon cache suggestion" above. Thanks to whomever figured that part out.