take a look to this tutorial: http://www.youtube.com/watch?v=oh2WGL8hvPo&feature=g-u-u&context=G2c3deb0FUAAAAAAAcAA just ignore the part related to UDK and focus in the creation of the alpha channel in photoshop, not in a million years I would figure out this very explicit and efective way to make an alpha channel. The initial problem in the video looks close to your problem. Cheers.
there is NO WAY ms Paint beat Photoshop in ANY level of work, other than that you are good to go, just learn a little bit about the standard programs to make this kind of work and you'll see the difference. Cheers.