I'm using this on 10.6 so individual collapsed windows don't take up dock space. However the collapsed window doesn't even show up in the Finder's window list in the dock - it is well hidden in 10.6!

The Finder won't let you close the window, only collapse it. And contrariwise you can't uncollapse it, only open it! The window remains in the Finder's (private) window list all along, it is marked as collapsed & invisible after the icons are hidden.

Correction to the above: the desktop is shown in the Finder's Exposé window list after it is hidden. It is just not in the Finder's window list as a hidden window.

After using the above script to hide the icons click and hold the Finder's icon in the dock. Exposé will show just the Finder's windows and at the bottom you will see a (rather dark, at least in my case) desktop; select that and the icons will all pop back - quicker than using the script :-)