RealWorld Cursor Editor
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Full user review
"The only free one out there"
I'm pretty certain this is the only free cursor creator, and it does exactly what it says. Helped me convert a PNG image to my mouse cursor.
The layout and user interface is a bit strange and doesn't have much context, but if you read the manual you can figure it out.
It could be better, but since it's the only software that can do this, I think it's pretty good.