Here are the steps to resolve the same. I hope this will help many of you guys and get a pat from your project team mates for solving this issue.
1) Create a favIcon.ico specifically of size 16 * 16 or 32 * 32 pixels.
2) Copy this to your root folder of apache (document root).
3) Firefox will display this after step (2).
4) IE7 and IE8 wont work properly for some reason.
some one said do rewrite rule
some one said have a AddType on the web server
5) I had to break up my head and finally figured out that I had cache-control for ico files.
Header set Cache-Control "no-cache, no-store, must-revalidate, max-age=0, proxy-revalidate, no-transform"
Header set Pragma "no-cache"