[ART] .DDS Files Not working?

[Romulator]

These work for me on Paint.Net.

You're okay to start with a png, but I would never include the transparency of the image. Make any areas which need to be transparent as black. You can then use your image as an alpha channel as well in the Material Editor.

The other two questions - I use the above and it works for me. If there are problems, generate the MIP maps and see what happens :3

Edit: Also - be sure you have a pow2 resolution image. This may not be the problem, but if it is, that tends to cause problems for the editor and game. A pow2 means using resolutions like 128x128, 256x256, 512x512, 1024x1024 etc. Choose one suitable for your material size - 1024 will eat memory