Flattening is also important. MIP maps are supposed to help with image scaling, but EQ2 doesn't use them. It only polls the full-size image, so the MIP maps are just wasted space for our purposes.
Edit: Odd, the file you posted above looked like it had been flattened—a single, locked layer named "Background" usually signifies that. Did you do something else to it after you posted that made it work where the version you posted hadn't before?
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