PS is what I use, it (normally) handles alpha channels beautifully.
Lemme go see if I can't find the (very old) tutorial on EQI about this.
/edit - Try
this thread. There are a number of other ones in that forum as well dealing with .tga files for mmorpgs. Some of the are specific to EQ, obviously, but a lot of what is covered in that forum has applied to every other game's graphics (that I've dealt with so far).
Also, if you want (another opportunity) to laugh at my original bumbling around,
this thread is quite helpful as well.
Sorry, but all of this was a long time ago now, taking me a while to filter through that forum to find specific posts. We need to get a lot of this relevant information copied over into the Tutorials section on this site as well.
(Plug: If you have great info that will really help others out, please
do feel free to add it to the
Tutorials forum.)