DXT3 eh? Wierd.
I'm using Photoshop 7 and selecting 8:8:8:8 (ARGB) with Mip maps, and it works great. I didn't even have to make an alpha channel. When I tried I got an error saying I had too many channels (5). Guess it made the alpha for me
Then again, I've never used PSP so I don't know how the layering works. It can't be too different from PS?