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Jesse -Edit :- Fading Icons Theme has been loved Across the themeing world. So after many requests,Foxy decided to put this Tutorial togeather. 

This is a Tutorial for making the Fading Icons for your iPhone/iPod. First you will need to download GIMP. This is just like Adobe Photoshop, but it is free on the Internet.

Let’s start by choosing an Image. I found this one from Google Images.

step-11

Use the Rectangle Tool to Crop this Image. and Use a Rounded Corner.

step-1-choose-rectangle

Now Crop your selection.

step-2-crop
Select Invert. This will actually choose everything outside of the selected area.
step-3-invert
Now Add Alpha Channel. This makes a Transparent Background. (Remember .JPG files don’t support Transparent Backgrounds. Thats why we save it as a .PNG file after changing.
step-4-add-alpha-channel
Now simply Cut out the outside area. This cleans up the outside and makes it transparent.
step-5-cut1
Now for the fun part. Filters, Distorts, then Lens Distortion. Click on it and it will bring up a new box.
step-6-lens-distortion
Make sure all of the below numbers match up. You can experiment if you like. These are what I used.
step-6-distortion-settings
Now goto Filters, Enhance, and Sharpen. This will bring up a new box.
step-7-sharpen
You can change it to your liking. Different images give different results. You don’t want to go too high, but this cleans up the image. Some of them don’t need it at all.
step-7-sharpen-settings
Scale the Image.
step-8-scale-image
The typical iPhone/iPod Icon size is around 60 px x 60 px. You can also experiment with this. You can leave the resolution alone or make it a little higher. This is set at 2oo x 200.
step-8-scale-settings
Save your file as a .png file onto your desktop and you are done. Here is what the Final Result should look like.
final-picture