Darkware,

Hey thanks for the input. I understand you about the photoshop part & then saving my texture as Targa within photoshop.

But the alpha what? I don't see just alpha. When I MMB on the texture file and drag it over the lambert material I get a list I click on other... Is that right so far? Then in the connection editor in the outputs I click on out alpha, because there no just alpha alone that I can see. The ones I see are Alpha is Luminance, Alpha Gain, Alpha Offset & Out Alpha. And then in the input part on the left what do I click on?

Is the Alpha channel in the connection editor? Is that what i'm looking for is plane AlLPHA CHANNEL? And not Alpha the one listed above? If so where this Alpha channel at?

And you say Alpha channel = transparency, So is it the other way around, as in transparency = Alpha channel, so therefor I need to click on transparency in the connecttion editor?

And this is without rendering right? I want it to show on the hardware texture, without having to render to see this transparency result.

Boy being a newbie can be very frustrating sometimes.