If I remember correctly, when the icon appears, that means that the INIT (extension) has been loaded, not that it is loading. This means that it is probebly the next INIT that is causing your problems. Do you remember what icon used to show up next??? If so, try removing it and see what happens. It might not help, though - not all INITs show icons. Also, some installers (ClarisWorks 1.0, anyone?) install INITs directly into the system file. So, does the icon show up on the "Welcome to Macintosh" screen, or a blank screen with the desktop background? The icons that show up during the "Welcome to Macintosh" screen are the ones (if any) that are contained within the system file. If all else fails, back up any INITs/fonts/DAs/cdevs/etc that you may have on it, delete the system folder (or just move it to an external HD, if you have one!) and copy the system from the ROM disk to your HD. That should solve your problem.

Sorry for the long post!

Good luck!