EDIT: Everything in this post was written on the assumption that the OP was talking about a full version of Photoshop. Now that it's been revealed that she's got a limited addition, though, unfortunately much of the text is no longer applicable. Many of the instructions in this post will not be followable in PS 5 LE. I'm leaving the post intact, though, in case anyone with a full version is having similar problems. /EDIT
From: Rival Destiny
I have a feeling there is no answer but an upgrade.
Well, your version is 10 years old, so frankly it's a little surprising it works at all on a modern OS. There are about a thousand reasons it would behoove you to upgrade. Alpha channels, however, aren't necessarily one of them. They should work just fine if the program itself is working. Version 7.0 was the only one that treated them incorrectly. All other versions, including 5.0 should be OK to use.
From: Rival Destiny
When I save copy as either it doesn't work as trans but opens back up with background.
So you know, it's perfectly normal for TGA files, even 32-bit ones, to display completely opaque in Photoshop. That might seem a little counter-intuitive, since SL has you programmed to associate alpha channels with transparency. But that's not always what they're used for. SL happens to treat them strictly as transparency maps, but in other programs they could represent any of a hundred different things. Photoshop is smart enough not to make assumptions about what you might or might not want any particular alpha channel to be for, so all it shows you by default are the color channels.
Take a look at your channels palette. Is the alpha channel listed there? If so, how does it look? Your intended opaque areas should look white on the alpha and your intended transparent areas should look black. If that's all there, then your transparency map is just how it should be.
If the alpha channel is missing, or if it's there but it looks wrong, then chances are you're doing something wrong. Most likely you've got either too few or too many channels in your working document. You must have exactly three color channels, and exactly one alpha channel, for a total of four channels in the image, no more, no less, if you want the transparency to work (in SL). Before we say for certain that the problem is user error, though, let's do a quick 10-second experiment, just to make sure the program is working properly. Do the following, exactly as written:
1. Create a new RGB image. Any size will do. Let's go with 256x256.
2. Flood the canvas with any color you want. Make it something really bold, and easy to see, like bright purple or fire engine red or something.
3. Go to the Channels palette, and create a new channel. It should name itself Alpha 1 by default, not that the name really matters. As long as it's the fourth channel on the list, and as long as there are no additional channels listed after it, it will be your transparency map, as far as SL is concerned.
4. Let's verify that you've got your alpha channel options set correctly. If they're reversed, you'll end up with transparency where you want opacity, and vice versa. In the Channels pallete, click once on the name of the alpha channel to activate it, and then click the little arrow at the upper right corner of the palette to bring up the palette options menu. Click where it says Channel Options. In the Channel options dialog, make sure it's set to "Color Indicates: Masked Areas".
5. Turn visibility (the little eyeball button) off on all three color channels, and turn it on for just the alpha channel. The alpha channel should still be the active one at this point, but if it's not click once again on its name to grab it.
6. If the alpha channel's canvas is not already black, flood it with black now. Then, with the elliptical marquee, draw a large circle in the middle of the canvas, and fill the circle with white.
7. Save the file as 32-bit TGA. If there's anything in the Save dialog that says something like "exclude alpha" or "discard alpha", make sure that's turned off. Or oppositely, if there's anything that says "preserve alpha" or "include alpha" or just plain "alpha channels", make sure it's turned on. Different versions of Photoshop over the years have had all manner of variants of this.
8. Open your newly create TGA file, and take a look at its Channels palette. Is the alpha channel there? Does it still look like a white circle in the middle of a black field? If so, everything's working properly. Upload the image to SL, and you should see colored circle (whatever color you picked in step 2) against a transparent background.
If the above did not work, then either you did something wrong somewhere along the way, or else your Photoshop is borked. If the alpha channel is missing, the possible user-error explanation would be you made a mistake somewhere in steps 3-6. If it's there, but it's all white or all black, then the user-error possibility would be that you had more than one alpha channel present before you saved, or that you skipped steps 3-6 altogether. If you're absolutely positive that you followed all the steps to the letter, then it's safe to conclude that your Photoshop is not working properly.
From: Rival Destiny
I believe this is perhaps because In the save box the flatten option is checked but greyed out so & cannot unselect it.
Nope, that's not the problem. It's not even A problem. If you think about it logically for a moment, it makes perfect sense. You're attempting to save to a format that does not support layers. So of course your only option is for the new image to be flat. TGA and PNG are both inherently flat; they cannot be otherwise.
In any case, flattening or not flattening has no effect on channels, only layers.
From: Rival Destiny
When I save copy as TGA & bring into sl all I get is transparency & the same thing occurs with the save box.
If the entire image is turning out transparent, it means your alpha channel is all black. To fix that in post, simply open up the TGA image in Photoshop, and paint the opaque parts white. But obviously it's better to prevent it altogether, which hopefully you learned how to do in the above experiment (assuming your software is functioning properly).
From: Rival Destiny
please let me know if I'm wasting my time with v 5.0 & my only problem is that I need to upgrade?
If you're absolutely, positively, 100%, without a doubt, certain that you've followed all the instructions without a single deviation, and it's still not working, then I'd say yes, your only problem is that you need to upgrade. There are so many good reasons to upgrade anyway, you really should. That said, there's no technical reason I know of why version 5 shouldn't be able to do the job. If it's really not working properly, my guess is either something got corrupted (in which case a reinstall would likely fix it), or else it's not fully compatible with your modern OS.