It sounds like you have not used Photoshop too much.
Photoshop is a bit outside the range of my teaching skills. If you do a search in the Photoshop Forum Archives here, you can find a whole lot of info on creating Alpha channels in photoshop.
This was just posted in our forum:
http://www.creativecow.net/index.php?forumid=23&threadid=472196&postid=1071...
Also, I think you could just save your image with transparency as a photoshop file, which creates an alpha automatically, you can import that into pIllusion - I think - I haven't tried this yet.
You'll need this patch, though, for pIllusion:
http://www.wondertouch.com/downloads/psd_support.zip
Aharon Rabinowitz
arabinowitz@yahoo.com
http://www.allbetsareoff.com