As for creating the bullet holes, it seems like you've found out how to do it, but you've got a small cut off indeed on some of them.
For thos who don't know how to change them here follows what to do..... The bulletholes itself are located in the files\gamecore\bulletholes\ folder. First of all rename the original file bulletholes.dds to something else, original_bulletholes.dds for example.
Now start up your picture picture editing application, one that can save tga files. Start a new tga file with a gray rgb background (red=128, green=128, blue=128) and a size of 512x512 pixels. The size and background color are to be like this, otherwise the bullethole will not workEither by using a(n overlay) grid or in mind, divide the 512x512 picture into 16 equal squares (4x4).
Each square represents a bullethole, so once you're done, you will have a 16 bulletholes. Each square is used for a different material and some seem to use overlays.
Now start painting a bullethole in each square. Make sure you stay well within it's boundaries to get the bullethole as good looking as possible. You can of course paint a (slightly) different one in each square. Makes it look more realistic.
When done, save the file as 32bit bulletholes.tga in the same folder as the original dds file which you've renamed.
Start a game, choose a gun and tada, different bulletholes. The engine itself creates a new bulletholes.dds in the folder. When editing the bulletholes.tga again, make sure you remove the bulletholes.dds first.
One problem with FPSC is that it can only use one type of bullethole in a game. The way around this is, create a number of bulletholes.tga files and in each build game, delete the bulletholes.dds and replace it with the bulletholes.tga you want.