Thanks for all the tips. Here's the texture. I imagine this isn't everyone's cup of tea, but it fits well into a theme I'm using for a specific region 
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It turns out that conversion tool I was using did create the alpha channel, I was just to blurry-eyed I think to realize it in photoshop 7, but saw it when I used adobe's latest subscription CC version of photoshop. (I still like to use PS7 a lot actually - I like the UI better and the ability to pile a boatload of images right in one workspace).
File if you'd like to try this texture is here: http://www.whitethis...kry_flwrs3d.rar
Three screenshots follow and here are the .set settings for those screenshots:
[GRASS]
Grass=1
GrassTextureName=kry_flwrs3d
Density=7.0
Height=0.850
AmbientRed=1.0
AmbientGreen=1.0
AmbientBlue=1.0
DiffuseRed=1.0
DiffuseGreen=1.0
DiffuseBlue=1.0
