favicon.ico (shortcut icon) & Internet Explorer 8 & rails

For all the poor programmers out there who have been scratching their
heads ...

If you do something like
  <link href='/images/UltraDedup-icon-003---16x16.ico'
  rel='shortcut icon' type='image/x-icon' />
and place it immediately after the in the <head> section of a webpage
then you may experience the following bizarre behavior:

Firefox, Safari, Chrome will all display the webpage correctly.

Internet Explorer 8 will almost get the page right but certain elements
will stretch and other elements will not center. It just looks weird.

The workaround that works for me is to place the link at the end of the
<head>. It all works in all browsers then.

Ugh.

- - -

Ok, that's the workaround. But I have read that FF and IE are supposed
to be able to display the shortcut icon (the icon that appears in a
browser's various tabs) if the icon is named favicon.ico and is in the
website's root.

Well, I placed this file in my website's root, in public, in
public/images ... all to no avail.

Where should I put favicon.ico and what, if anything, should I tell
rails about it?