Firefox 3.6 dropped support for XBM images citing lack of use (and a security hole or two), so SoundManager 2 has moved to using canvas for rendering favicon images on-the-fly.
XBM with data URI (may be broken image, invalid etc.):
See the SoundManager 2 demo with experimental favicon animation feature enabled, and the related screenshot showing the different states.
XBM (X-Bitmap) is neat in that it's an ASCII, C-style declarative image format, and is quite old. See XBM on Wikipedia for more.