This should be implemented now (was oldest RFE/Bug post
Implemented 8 bit icon transparency support on Linux.
The LWJGL code was using an ancient/legacy API (XCreatePixmap) to set the icon which only supports 1 bit transparency. Removed legacy method and associated code.
Now using the modern _NET_WM_ICON
method from the latest EWMH spec (freedesktop.org) to set the icons.
Icons should now also be visible on modern Linux WM's where they previously were not showing, e.g. KDE no longer supports the old way of setting icons with XCreatePixmap.
Should be available in the next nightly builds of LWJGL.