That option is greyed out.
Here's how I do it in PaintshopPro to Gimp.
I save my .psp file with all the layers. This is what allows Gimp to convert with the A8 option.
I open Gimp and save as a .bmp -- when the conversion menu pops up I leave the default selections (Merge Visible and A8) as they are and save it as P51d.bmp (or whatever).
Copy/paste/replace in the AH3 directory.
If you try to convert a .bmp it won't work. Convert your original format file.