That file has nothing to do with bootup, it's for automagically running things when the Cybook is connected to a Windows PC.
The "system/device.ico" should be a normal icon file and thus I'm guessing it should be editable/replacable like any icon file. (Note: I'm guessing. Try at your own risk.)
As for the other sections, see
wikipedia.
I'm thinking they added that file to get computers running Windows to show a nice Cybook icon when the device is connected. As far as I understand it, the "Content" and "IgnoreContentPaths" sections basically tells windows to ignore anything on the Cybook, and the "autorun" section just sets the icon to display.