Working with alpha channels

[dragonbird]

I'm trying to work out how to change the alpha channel on a texture, and am experimenting using the harpy feather from A Sackful of Fluff, on the assumption that the feather shape would have been done using an alpha channel rather than on the mesh. There's a diffuse map for the feather (chicken_man__e1.xbm), but no normal or specular map.

 

I'm converting to dds/bin using QuickBMS with the w2_xbm2dds.bms script. The converted files are renamed as DXT5,

I'm then opening the DDS file in Photoshop using the Nvidia plugin

In Photoshop, while it's in DDS format, I don't seem to be able to add transparency (by leaving areas blank) or an alpha channel. I've tried

- using the Binary Alpha Threshold when saving

- saving it as PSD and then creating transparency or alpha channels

- assumption that it treats black, white or the existing background colour as the alpha

I save as dds, using the DXT5 ARGB 8 bpp | interpolated alpha option, which is the only one that QuickBMS will accept as valid.

 

When I load in the game, the alpha is still the original feather shape.

 

What am I doing wrong, or is my initial assumption that the alpha information is in this file wrong?