i have psp7 as well, so this is the method i use:

a) paint a b&w pic.
b) goto masks>new>from a picture (the last entry)
c) form the dialogue box, choose "from brightness of source" (or whatever it´s called in English, i just have the german version)
d) ok
e) then go to masks>save as alpha channel (last entry)
f) save the whole picture as *.TGA


the second layer has to be a tga file as well, so bmp will not work.