the directory shows the correct icon
Okay - You might have to bite the bullet and rebuild the icon cache; Go to C:\Users\USERNAMEHERE\AppData\Local\Microsoft\Windows\Explorer and delete (Move everything called "iconcache_*.db" (the * being the wild card, so basically everything with iconcache_ and ending in .db. Once you've done that, open CMD as administrator and run type ie4uinit.exe -show.
I would recommend reading up on this to be sure if you want to go down that route, or simply try to reinstall diablo 2 or repair it.