This is what I've done for mine.
Firstly, create the image you want in Photoshop, but what you want to be transparent set as a colour you aren't using. I tend to use something like the bright purple or lime green as the background, then overlay on that whatever you're doing.
Save as a Targa (.tga).
Then, download and install the "TGA Tool" which can be downloaded free at
http://www.leadwerks.com/ (you need only do this step once!)
Open up the image, go to Tools > Alpha Channel > Mask Color and pick whatever colour you want to set as "transparent" (if you haven't used one of the standard pallette you can enter the RGB values of the colour which can be got from Photoshop.
It will take a few seconds (depending on the size of the image and your PC's power), then you can save it (for safety I always use a different filename just in case), and upload it as normal.
One useful tip.... you have to have the EXACT RGB value as the mask colour otherwise it won't work.
I found that turning off anti-alias whilst working in Photoshop made a difference too, otherwise you'll get lines around the outside of your image, which will affect the way it looks.
I have made quite a few transparent images this way, if you'd care to look me up in game some time I'll give you a tp and show you some. My bead curtain and windows have been particularly appreciated by my customers.
Lewis