Nose Art is a 64 x 64 pixel bitmap file. The best advice I have received on making one came from another who suggested taking an existing nose art (they can be found on your hard drive in the HTC/Aces HighII/Squads/*.* folder) and pasting into it. Pick one with virtually the same colors as yours and make sure it is saved in indexed mode. Then test it for features like Transparency and ability to load in game.
Save the previous squad nose art under another name and then name the newly created file with the name of the CO of your squad (for example: if I were the CO my nose art would be Chilli.bmp) If all is done correctly you should be able to view the new nose art in game. Note* only those who have the file uploaded onto their computer like yourself will be able to see it, until Skuzzy uploads it.
I believe there is a way to check it offline, but I need help there ( I thought I heard this was a new feature in one of the not too distant patches -- I may be wrong). Anyone know how?