I've encounter this problem before. The graphic guy give me a tree with alpha channel in .dds format, though you could see the alpha channel (black portion) when you import it MED.. but it's not a problem...
But when use the tree (with alpha channel). Add the tree model in WED, just follow this step:
1. add the tree model
2. check the overlay flag property of the tree model
3. build & run WED. You couldn't see the alpha channel anymore of your tree model
Cheers.