The alpha channel isn't automatic; you create it yourself. You make the stuff you want visible white, and the areas you want tansparent black (on the alpha channel) corresponding with where your graphics are on the RGB channel.
I'd like to point out a tool since EQ support DDS. You can download the latest DirectX SDK (found at microsoft site, just use the search feature to find it). Install the SDK. Now create your images in your favorite editor, create a seperate image that has an outline of your images, black for don't show, white for show, any color in between on the greyscale is just a different level of transparancy. These images can be in almost any format, preferably png or bmp.
Look for DirectX SDK in your start menu, look for the DirectX Texture Tool in there. Open your image, then go Open onto Alpha Surface and select the black and white mask. Save the file as a DDS, and voila you have transparency in DDS format without any expensive tools like photoshop. DDS is a format designed for direct x textures so it has a rather fast load speed compared to other formats.