Denholm,
You can tell to the OE/TE/game which color in object texture pallet will be a transparent.
Example
Export from OE the GRASS1 object. Open the 'export' folder and check what did you get this time.
There are three GRASS1 files
- GRASS1.ac
- GRASS1.bmp
- GRASS1_a.txt
Two first are clear but third is new. The text file contains the index number, which tells which 'GRASS1.bmp' texture color should tread as a transparent.
HTC seems to use the pink (R=255, G=0, B=255) for the transparent.