If you load the Peter K. icon library through another method, for example LoadModule, does it work then?
I also assume you are trying to use 3.1 + BetterWB. With 3.5 and above you don't need to use any "special tricks" to install this library. I would try this combination: 3.9 + Peter K. icon.library + CSMK3. Does it work then?
The trick is to find out if the CSMK3 really is having an issue with the icon.library, specifically, or if it's something else buried in configuration. Good luck!
Edit - try a different/newer version of the icon.library?