Hehe... I found out that I still have both the conversation and the original files logged (thanks to Google). Here's the reconstructed procedure:
1. draw a 40x40 circle in MSPaint (colors are basic red, blue and green)
2. apply style="Filter: Alpha(Opacity=0, FinishOpacity=100, Style=2)"
3. make screenshot
4. resize to 16x16
5. manually pixel-tweak the most jagged edges.
I'm starting to wonder. Wouldn't it be more proper to use a higher-resolution image than 16x16, and give it a width/height property? These would definitely scale better...