If you use the alpha channel I think you'll lose the Z-sorting on the poly, unless you sort it manually.
Masked textures should work OK - try turning off the mipmapping for that texture - try using CLEARTEXTUREFILTERS before loading the texture, then either load with just the COLOR and MASKED flags (1+4) or use the TEXTUREFILTER command on the named texture after loading, again setting to COLOR and MASKED only (1+4).
Remember to reset the default filters after loading this texture - use CLEARTEXTUREFILTERS following by TEXTUREFILTER "",1+8
Masked textures should work OK - try turning off the mipmapping for that texture - try using CLEARTEXTUREFILTERS before loading the texture, then either load with just the COLOR and MASKED flags (1+4) or use the TEXTUREFILTER command on the named texture after loading, again setting to COLOR and MASKED only (1+4).
Remember to reset the default filters after loading this texture - use CLEARTEXTUREFILTERS following by TEXTUREFILTER "",1+8