Changing Folder's Icon

Question

I am using Mac OS X Snow Leopard 10.6.8. I tried changing a folder's icon using this well known method. I used a png image as my target icon. The icon does get changed, but not to the picture itself, but the icon of a png file.

The Icon I want to be there:

What I get:

You see? That is not the png itself, but the icon of a png file.

I want the png to be the icon. Am I missing something?

(If it is important, "Show Icon Preview" is turned on in Finder view options. This folder was read-only for everyone but after seeing Problems changing drive icon I changed it to Read Write for everyone)