In MED, I have tried importing Bit Maps as skins, but I am having some trouble.

Question Number 1: Do I have to match the size (320 x 200 [x 8?]) to import one of the compatible image types?
Question Number 2: Why are all the colors wierd? I have tried importing a 256 and a 16 color bitmap, but there is no change. White still comes out as a hideous shade of pink, and other colors are skewed, as if the RGB values got lost in translation.
Question Number 3: The 3DGS manual says that there is some "alpha" channel that holds the key for transperancy. What is this "alpha" channel, and how do I use it?
Question Number 4: What is MDL/MD2 mapping? What is the diffrence between the two? I realize that I have to get a map of one side of my model to apply a skin image, but how can I get one/multiple image(s) to affect every side of my model?
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Thanks for any help I recieve. I'm pretty new.