Yes of course I meant a real alpha channel - what other kind is there! - (not a question).
.dds with alpha chamnnel is by far the best format and making them yourself is more exact than FPSC converting formats internally.
You could try PNG as you can often get auto recognition of the transparency (black) colour inside FPSC for PNG files which seem to work quite well when FPSC handles them.
Forget any other file formats for transparency I recon.
Whichever method or file format you use in any case - makes absolutely no difference if your artwork image with alpha is not correctly made up - the result will still be ugly black edges and alike in areas where you dont want them - thats simply the fault of the image creation.
For example leaves on a tree - if the areas to be transparent on your image are not perfectly black and wholy 100% black where you need the transparent areas then you will have black edges to your leaves. If the image is correct you wont.
In your paint program try extensively inspecting areas that you assume to be black with the eye dropper tool - in a 24 bit colour image your black areas for transparency need to show as 0,0,0 - anything else just wont do anywhere you want 100% transparency.
"I am and forever will be your friend"