Can't make .vtf files with Paint.NET.
Sure you can.
Sir, that is a dumb idea. You need a .vmt to accompany the .vtf, along with the fact that paint.net can't save the same compression type that .vtf uses.
Use the highest quality.Use the import feature in TF2 and locate the tga file yourself. it should work.Works for me at least, I use Photoshop CS5.1
When you're saving it as a targa file, select 32-bit, and don't compress. It works fine for me.