I don't know whether this helps locate the source of the problem.
Try this variation of KISTech's code. This suggests to me that the alpha mapping command might be using blend stage 1 for the alpha mapping. Lee should know the answer.
sync on : sync rate 30
color backdrop 0
make object sphere 1, 20
position object 1, -5, 0, 0
make object sphere 2, 20
position object 2, 5, 0, 0
create bitmap 1, 64, 64
cls rgb(255,0,0)
red = 1
get image red, 0, 0, 64, 64
cls rgb(0, 0, 255)
blue = 2
get image blue, 0, 0, 64, 64
cls rgb(64,64,64) ` try changing this to different shades of grey and see what happens
grey = 3
get image grey, 0, 0, 64, 64
delete bitmap 1
texture object 1, 0 ` Clear all texture stages
texture object 2, 0
set blend mapping on 1, 0, 1, 3, 4 ` Put our Red image on stage 0 of object 1
set blend mapping on 2, 0, 2, 3, 4 ` Put our Blue image on stage 0 of object 2
` Comment out these 2 lines, and it works.
` Leave them uncommented and it breaks SET OBJECT TRANSPARENCY
set blend mapping on 1, 1, 3, 3, 22 ` Flat bumpmap applied to stage 1
set blend mapping on 2, 1, 3, 3, 22 ` Flat bumpmap applied to stage 1
set object transparency 1, 0
set object transparency 2, 0
set alpha mapping on 1, 100
set alpha mapping on 2, 0
direction# = 0.25
x# = 50
while not escapekey()
text 10, 10, str$(x#,0)
text 10, 30, str$(y#,0)
inc x#, direction#
if x# >= 100 then direction# = -0.25
if x# <= 0 then direction# = 0.25
y# = 100 - x#
set alpha mapping on 1, y#
set alpha mapping on 2, x#
sync
endwhile