Thanks for your detailed reply. When I first looked at the code, it seemed wrong. But I didn't have time to really test it yesterday.
Today I tested it and I confirm your findings. The file is detected but the path is not used and the icon mapping ends up empty.
I have just compiled a version with a quick fix for you:
According to my testing now the
~/.totalfinder-sidebar-icons.plist file should be properly loaded. If in doubt, you could
touch ~/.debug-totalfinder-icons, restart Finder+TotalFinder and then in Console.app you should see some debug logging about icons TotalFinder tries to use for the sidebar.
If you confirm it, I will include the fix in the next release. Thanks!