1. I wouldn't use a jpg as it's going to leave artifacts all over the place and spoil it, use a png.
2. 2D or 3D?
3. If 2D then you don't need to use black, use the maskcolor command and use something really obvious like magenta then it will be easy to see what's transparant and what isn't.
4. If 3D then use an alpha mask, this way you can have your smooth blend so the black bits are 100% transparant and greys are x% transparant, this way you'll end up with a nice smooth effect. You'll have to save your texture as a PNG or TGA with the alpha channel, then load it into blitz using the alpha flag.
Basically your problem is what you're doing in photoshop though, nothing to do with blitz per se, and I'm no expert in photoshop so I can't help you there... Sorry.
2. 2D or 3D?
3. If 2D then you don't need to use black, use the maskcolor command and use something really obvious like magenta then it will be easy to see what's transparant and what isn't.
4. If 3D then use an alpha mask, this way you can have your smooth blend so the black bits are 100% transparant and greys are x% transparant, this way you'll end up with a nice smooth effect. You'll have to save your texture as a PNG or TGA with the alpha channel, then load it into blitz using the alpha flag.
Basically your problem is what you're doing in photoshop though, nothing to do with blitz per se, and I'm no expert in photoshop so I can't help you there... Sorry.