Okay, I feel stupid. I modified the icons in PSP by opening the Toy Soldier icon (I liked the background color) then erased the soldier and pasted the gear. PSP does not show the alpha channel like Photoshop but shure enough it is there if I select Image Info. Since I stayed in the TGA format the whole time it kept the alpha channel in tact and I didn't even notice.

Lucky me. This is good news cuz it means you can have icons any shape you want if you so desire to deviate from the round standard.
And thanx, it did come out pretty nice. Took me awhile to find the right gear though.
snoopy, I will have a look see at creating TGAs with alpha channels from scratch, in PSP, and see if I can learn ya. ;p