ok simple enough to explain by picture so ill show you whats going wrong
the clear edges are showing up with only png or gif and i just wanted to know if it was possible to run an alpha map over an image and if so how to do it
you need to make sure you turn on Z-trans in the material
i tried that 
it only made the preview show it
I did this with a TGA just to be sure. Here are the buttons settings I used, plus ZTransp over on Links and Pipeline which was on my other mat buttons array to the right … :D.
There seems to be some issues with the test file from photoshop, but some of them are from the way their soft brushes and gradients work it seems. I’m not really sure what’s going on there. There also seems to be some edging issues.
I set spec to zero because I thought it had been hilighting over the transparent areas, but that dosn’t seem to be the case. It really shows the edging issue I’ve got tho.
Hope this gets you in the right direction.
with the edges - try and click the full OSA button
thanks for the help ill try this when i get up later (super long day)