Restating the problem as aparently the comment was insufficient for a response in support of a solution. I have the same problem.
BOTH the logo and favicon add functions fail.
The instruction reads:
Path to custom logo
filename.png
Examples: filename.png (for a file in the public filesystem), public://filename.png, or sites/default/files/filename.png.
Uploading in the field provided does not result in successful loading of either a logo or favicon (same instruction for each).
Adding the string to identify the file location (.png or .ico as appropriate) results in the error message:
The custom favicon path is invalid.
The custom logo path is invalid.
This presents the user with a situation in which it is easier to find an alternative theme than to configure a theme that does not permit display of the users logo or favicon.
PLEASE help.