
I've tried inserting raster data from a (converted) bmp of same size (521²) by the means of hex editing. Looking at a cursor file produced by Axialis CW, I see the flag set to TRUE weirdly enough. On the flip side, it seems to have no hotspot fields, and itself uses CUR/ICO format for the animation frames, unless the IconFlag bit is set to FALSE. ANI format looks more promising since it has 32 bits reserved for those. Looking at the file format specifications, the usual upper bound of 256² pixels might be caused by the CUR/ICO format working with 8 bits for width and height fields each.

Axialis Cursor Workshop is the only cursor creation program I've tried which goes above the usual 256² pixel limit, but still caps at 512² pixels. For that, the cursor image resolution would need to be at 4K (3840x2160) along with having an alpha channel (32bpp).

I'm trying to create a cursor file which can cover the whole screen with a flashlight effect on a full hd (1920x1080) screen.
