answer should be yes... however I think using
.tga would bring better results
or even better...
.dds
but it all comes down to your photo manipulation applications and their export options
hopefully you have
Gimp already
hope this helped...
and hopefully someone who is wider awake than me {07:20am UK time] will come along and also explain how to enable transparency should you require assistance for it too
[SET OBJECT TRANSPARENCY...]


EDIT
OH and hopefully someone can also answer the shader related question... I forgot about it sorry...