I posted this in another forum, so will copy it here.
There is a great freeware program out there called dxtBMP. It was originally written for the flight sim community, but works with any DDS or TGA graphic as a front end program for editing them.
Get it at:
http://www.mnwright.btinternet.co.uk/
Click on the dxtBMP button at the bottom of the page to take you to the right page.
The idea behind this program is you open the DDS or TGA file into it, and then you can send the graphic itself or its alpha channel to your existing graphic editing program. The graphic or alpha sent is in bitmap (BMP) form, so almost any graphic editing program will work.
After modifying the graphic or alpha channel, you 'save' the BMP (it goes to a temp file - don't use 'save as'), go back to dxtBMP, and retrieve it. From dxtBMP, you can then resave the DDS or TGA.
I've used dxtBMP for several years now, using it on many different game's graphics. It works magic with a simple companion image editing program.
TT