you can just use black on the object and set the objects transparency on, that works ok, or you can set a rgb value with the
set image colorkey command, then make an image with that rgb value for the transparent bits, it should work, I can only assume you either have saved the image at a different bitdepth (eg 16 bit) OR you saved the image as JPG, JPG is a lossy compression system that creates something that LOOKS like the image you had, but that section of colour will be messed up and may be quite a way off from what it was saved as, the rule is DONT USE JPG FOR TEXTURES, all you do is save a little disk space since they get converted back to bitmaps internaly anyway when they are loaded, except that a converted JPG is a corrupted bitmap and will bear little relation to the original (on a detailed level that is), and that would mess up the colourkey.
Mentor.
PC1: P4 hyperthreading 3ghz, 1gig mem, 2x160gig hd`s, Nvidia FX5900 gfx, 6 way surround sound, PC2: AMD 1.2ghz, 512mb ram, FX5200 ultra gfx, stereo 16 bit soundblaster.