If your explosion generator can not generate images with an alpha channel, it sure is a sucky explosion generator, and maybe you should change to some other one.
This is what I was going to say. It is also possible that you may have some settings messed up. I doubt you are using Particle Illusion(since it isn't free that I know of), but it has specific settings for things that control how strong the alpha is, and even the particles themselves can be set to affect how much alpha gets into the final images.
The other thing I was going to say...is there any reason why you haven't implemented a particle system. It isn't near the undertaking as some people make it out to be. Also, depending on your engine(or what APIs if any) you are using, you may have such a system already available. You didn't specify what you were using so I can't help directly there. Doing your own particle explosions has many advantages though. Each one can be slightly different. You save the image set(texture memory, etc...) since it is done at runtime. You can easily modify effects for bigger/smaller explosions. And if you have a good particle system coded, you can add many more particle effects to things you might not have planned to add them too, like exhaust from ships, trails from bullets, etc...