Using png as folder icons only renders the generic Preview icon

Basically, the only way I can customize my folder in finder is by dragging "*.app" into the info box folder icon. Every time I drag a png, jpg, icns the icon of the folder turns into the generic preview icon.

I've tried repairing the permissions and changing the default "opener" for png files and all other images but still no luck.

I'm running Snow Leopard now and everything used to work fine in Leopard.

I guess I'm not meant to drag png, jpg and other image formats to folder icons. I need to create a .rsrc to be able to customize folder icons.