There are certain situations in which only the favicon is displayed - for example, when tabs are "pinned". In these cases, appending text to the page title would not be visible, which is why it's beneficial to have a dynamic favicon.
And my pinned tabs are wider than regular tabs. So favicon it is. Gmail has this function and it is great. Although I do agree that having both is probably the way to go. Change favicon (don't blink!) and prepend a number/message to the title.
Also, in many cases the title of a page is longer than the area it's supposed to fit in - in which case, appending the alert to the page title results in it not being visible.
