Really simple way to fix this, you need to use a .bmp file with a alpha layer. Just use the alpha texture flag and not the Masked. Just pop open photoshop, add an alpha channel, make the stuff you wanna see black, the stuff you don't want to see white, and your problem is solved. Works with 16, and 32 bit images.
And for all of you that are going to yell about a .bmp file not having the ability to support alpha information - try it and run it in blitz. It's flawless.
And for all of you that are going to yell about a .bmp file not having the ability to support alpha information - try it and run it in blitz. It's flawless.