I tried to use dds image files for some HUD elements, but it seems that overlay isn't working. I double checked that the pixels are actually color (0,0,0) and that the overlay flag is set. When I save the file as bmp and use that it works. Is this a known limitation of dds or the engine, is it a bug or am I doing something wrong?

why? dont you just use tga-files?

dds images save memory, and for simple panels overlay transparency is of sufficient quality.

I prefer .dds, too but why don't you just give them an alpha channel and save them as dxt5 or uncompressed 32bit?

Yea I gues I'll do that. If someone knows the reason for this limitation I'd still like to hear it.

Hm, what format did your .dds had? Maybe it has something to do with compressed...

Yea thats what I thought, but I don't know much about how the dds compression actually works. The image is in DXT1(RGB).

I'm going to use dds with an alpha channel.

Yes, do this. But you could also try to save it as non-compressed .dds and try if overlay works. If you have the Photoshop-plugin for saving .dds you have to choose the 8:8:8 format (uncompressed, 24Bit, without alpha channel).