PHOEBUS_H isn't the name of the file, it's the name of the tile page. The file used for that tile page is phoebus/humans.png
You shouldn't be calling your stuff Phoebus anything - that will only result in confusion and RAW conflicts.
Relevant bit:
[TILE_PAGE:PHOEBUS_H]
[FILE:phoebus/humans.png]
[TILE_DIM:16:16]
[PAGE_DIM:12:22]
I don't think Illustrator would work for this. It's for making vector graphics, which DF can't use.
If you are looking for free programs, GIMP, GraphicsGale, or Paint.net are good. Personally, I prefer GraphicsGale for sprite work. It has a lot of useful features, like layers and alpha channels, without all the painting and photo editing features you won't use for sprites.