You don't make the texture transparent, you edit the material in blender/milkshape.
Here is what you do in milkshape:
1. Slide the slider a little bit to the left which should make the material transparent.
2. When you export, you also need to make sure the exporter knows you want the material to be transparent, select the material you want to change, then edit.

3. In the edit menu that opens, make sure these settings are checked.
4. Make sure you apply your changes when you are done. When you export it into the game as a .dts it should be transparent.
Blender tutorial:
Blender is pretty simple, once you select a material and texture, go to the material tab and check the transparency tab to be on, then change the alpha to the value you want. The higher the value the more transparent the object will be.

Heres what it should look like in game:
The blue cube is what I exported from blender, and the white cube is what I exported from milkshape.
