If you've been confused about how to make Alpha Channels for Second Life using Photoshop, hopefully this 4 minute video will clear it up.
The process is simple, and takes just a few steps, working from an image with transparency in PS.
Watch the movie to find out a very easy way to do it! You can download the movie here, if you have a hard time watching it on line.
All you need to do is make your file, with the layers showing whatever opacity you want.
Then select the top layer, hold down Shift Option Command on a Mac (Shift alt ctrl on a PC) and tap the E key. That makes a composite above the selected layer. (Note: for Photoshop 7 and lower, you'll need to make a new layer first, to hold the Composite. PS CS and above do that step for you.)
Then just go to Select > Save Selection, make sure that you only have a single Alpha (if you already have one, Replace the one that's there,) and you've just made a perfect Alpha Channel.
Finally, to totally eliminate the white halo in SL™ duplicate the Composite (hold down the Option key (alt on a PC) and drag the layer down to duplicate it below the original Composite.)
Then run any of the Solidify filters from Flaming Pear by going to Filter > Flaming Pear > Solidify B (for example.) You can get the Flaming Pear FreePlugins filters here, if you don't have them. You'll find them near the bottom of that page. The Solidify filters are just 3 of the many fine filters in that set. While you're on the site, check out some of the other filters there. I can highly recommend all of them.
Then just save as a 32 bit targa (.tga) file, and upload to SL. You'll have a perfect alpha, with no muss, no fuss, and only 4 mouse clicks.
How easy is that?