Most browsers do allow 32x32...except for Chrome, that is. Not really sure why (that said, I think Chrome only chokes on 32x32 ICOs, but still). :/
Personally, I think that 16x16 icons are far more practical in terms of web pages. I'd go nuts if bookmarks were displayed with 32x32 icons on my toolbar or whatever. Of course, having a large tab bar that resembles the Windows 7 taskbar would be pretty damn cool.