Whoooops!
I finally realized what was making my icon frames white! I started using Wordpad to edit the xml files and it was saving them as ANSI text instead of UTF-8. /bonk
Everything seemed to work except probably the '#' character isn't the same. I went back to Notepad and things look better now.
So it seems like the vertical size snaps to what should be the correct size, but only if your rows are 4 slots wide... This will be a problem unless we can work around it somehow.
I looked at your bag some more and messed with mine some more to come up with: