Sigh. Yet another case of vagueness in the question. I assumed, by "jagged" edges, he meant aliasing in the transparency; y'know, the stairstep look. But he may have been referring to pixels showing up due to anti-aliasing in the image creation which he wanted transparent. His description of "ugly looking" in his question didn't exaclty clear up this confusion either. So Kinji, we're both right.

Nobody seems to realize that, to get useful help, you need to ask good questions. And that means, among other things, being specific.