The subject says it: Can I do a choose from list with a custom icon in the manner of display dialog? If so, how?
No, it’s not, because choose from list command doesn’t have the parameters to embed an icon which becomes immediately evident if you open its Standard Additions dictionary.
You could use emoji—which are essentially icons—in the text, if that helps.
choose from list {"1️⃣ ???? apple", "2️⃣ ???? kiwi", "3️⃣ ???? orange"} with title "Favorite ❤️ Fruits " with prompt "Pick"