There is one inescapable fact that compells me to keep warning against using embedded/automated alpha. It's not as simple as does it work okay for some, most, or even all images for a certain person. The real achilles heal here is compatablility. Files with embedded alphas are incompatable with most other programs, and as I keep saying, it's somewhat miraculous that SL can even read them. Most programs can't. SL's ability to do it could change at any time.
Here's the deal. Channels, including alpha channels, are a standard that have been in place, completely unchanged for decades. It's one of the few examples in computing of something that was gotten right the first time, and it's been the core of all digital imagery ever since. There's not a graphics application on the face of the earth that doesn't understand what channels are and how to construct images from them. It's been that way since the dawn of graphics, and it will continue to be that way probably forever.
Embedded alphas on the other hand are the result of an experiment by one company in one product. The experiment was deemed a failure and was then abandoned very quickly. Because that abandonment happend so fast, there was never been a need for other programs to learn to use embedded alphas, so most of them can't. As time marches on, and the relatively few files in the world that have embedded alphas become more and more diluted in a sea of proper files with real alphas, what few programs can use the embedded ones have even less and less reason to continue to support them. And as these programs become more and more sophisticated with new features, all designed to take advantage of real alphas, it can easily be argued that there's real incentive not to support the oddball embedded alpha files. It's a relative waste of effort to keep working something so obscure (and in many people's eyes, "kiddified" or "unproffessional"

into the display system.
So, to those who continue to use embedded alphas despite the repeated warnings from proffessionals in the graphics industry, be prepared for the fact that the day may come when your images no longer work in SL.
And by the way, if you're wondering just how bad the damage can be, here's an example of one of the ways in which an embedded alpha can be misread: .

This image of a Star Trek combadge was created in Photoshop 7.0 using the TGA saver this thread is talking about. It started out with a with a transparent background, but after opening it in a program that doesn't understand embedded alphas (PS

, it looked like what you see here. Half the transparent area turned white, and the other half got covered in lines extruded from edge pixels from the opaque part of the image. Once that happened, it was all over. The TGA file would not open properly in any program including PS7 from then on.
My hard drive is full of pictures that developed this exact same problem after having been opened in various programs that don't support embedded alphas. Each was created using the exact same saver utility that this thread is talking about, and each became corrupted the moment it was read by another program. For comparison, it's worth noting that none of my other images have ever been corrupted, only those with embedded alphas. Also, I should mention that not all my images with embedded alphas have had this happen, only some of them. I don't know why some continue to function while others don't, but I don't really care. There's an obvious pattern here, and the obvious common thread is the embedded alphas.
Okay, so one might say, "No big deal; this kind of damage looks easy to fix, right?" WRONG.
If you're still in PS7 mentality, instinct tells you to just erase the backgroud again and all will be good again. Well guess what. That doesn't work. Erase it a hundred times, and those weird lines and white space will be back again as soon as you close and re-open the file.
If you've accepted that PS7 thinking isn't gonna cut it anymore, meaning you're finally willing to use real alphas now, then instinct says just go back in and give the thing a real alpha to mask out the damage. Well guess what again. Those embedded alphas are in there to stay, and they don't always like sharing the rent with real alpahs. In my experience, giving the image a real alpha after it already has an embedded one has no guarantee of success. Sometimes it works; sometimes it doesn't, and I've never been able to determine any rhyme or reason as to why or why not. It's a crap shoot, and that's that.
Even when it does work though, it means you've just done exactly what you tried to avoid by using the automation in the first place. In other words all you did was put off until today what you could have done yesterday. But, what would have been a 2-second job while you were first making the file can take significantly longer when all you've got to work with is a flat TGA with wonky lines all over it.
Okay, so now maybe one might say "No big deal; I still have all my original PSD's and I can make new TGA's from those." Well, great. You can output new TGA's with real alphas that won't get corrupted, and you WILL have success, but guess what AGAIN. You're still doing work now that you should have done before. Even if it only takes you a few seconds per file to make the alpha and output the new TGA, multiply that by all the potentially corruptable TGA's you've ever made, and you've probably got a ton of work on your hands.
Alright, now one might say "Well, I've been uploading these embedded-alpha TGA's to SL forever and SL reads them just fine, so what's the big deal?" Well, the big deal is what I said back at the beginning of this post. There's no guarantee whatsoever tha SL will continue to read these oddly coded files in the future. It could easily stop reading them next year, next month, next week, or even tomorrow. Every time you make a file without a real alpha, you're rolling the dice on whether or not it will work with SL. So, wouldn't it make sense just to start using real alphas now rather than wait for things to go wrong?
Believe me, I don't own any stock in the alpha channel market. I don't profit in any way by telling people to use real alphas. In fact, as a texture artist, I'd profit more if things did go wrong for other people because I'd be the one holding all the uncorrupted textures. So why am I so adamant about this? I just can't stand to see people having problems when I know how they can prevent them. Embedded alphas cause problems, plain and simple. Real alphas are the prevention for those problems. Use them.
Philosophically there is nothing "wrong" with using automation to create transparency or anything else, as long as the automation works reliably. However, since in this case the automation is not reliable, I have to reject it strongly on technical grounds. Technically, there is a lot "wrong" with alpha channel automation. To anyone who uses it, unserstand that you may be doing so at your own peril. The process is riddled with problems, which is why Adobe abandoned it.