I have also tried clearing the current icon so it is back to default, then opening the new icon image in Preview, selecting all, copying, then clicking on the icon in the Get Info window, and Pasting... and it still shows the old custom icon.
Answer 1: restart the computer
This fixed it, but then if you want to change it again, the problem resumes.
Answer 2: use Disk Utility
Dragging any .png image in to the drive's icon in Disk Utility solved the issue.