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There are a couple of FAQ's around about this, but due to the never-ending development of software and stuff they aren't entirely accurate.
I use Adobe Photoshop 8/CS for creating my logo, so this is what I will describe to you. I am not a graphical designer by any stretch of the imagination, and this is a long-winded way of getting it to work. The point is though, it does.
Image details
64 x 64 pixels
RGB Colour
Single layer with transparencies
Make sure the image goes to the above specs.
Save the image as a Targa (.tga)
Reopen the Targa image
Switch to your 'Channels' pallete
Hi-light the areas you want to be transparent
Switch to the 'Alpha' channel
Paint bucket/colour in the selected area in black
(you should get a red transparent effect over the selected area if all channels are visible)