I've just had my attention drawn to "set object transparency" which states that "setting the transparency to one will ensure the object does not draw the transparent color duing final rendering"
It lies! I have tried using PNG,jpg and tga with an area in the image set as black which should in theory become transparent, having set the transparency color to black (which I believe it is by default anyway).
Has anyone seen this working (on a 3D object) as it theoretically sounds like something similar to using alpha channels but without the greyscale range?