I dont know if I did it correctly. I'm a newbie on image editing and this is the first time I've encountered this case. I've found a solution on google but the problem which was raised by the poster was different from my case. Please feel free to post some correction then. Thank you all - pepesmith

I was editing some BMP image files in my Windoze XP earlier. Since the background of the area where i'm going to post this image is gray, I'ved used the eraser that uses a gray as background. I've preferred eraser over brush with color gray. :) This is to ensure that the picture blends on the background if I decided to combine it on the area which this images will be posted.

Later on I've decided to use this image as my signature in some forum site but this time the portion which i've grayed earlier must be transparent. When I tried to revert to transparency, it turns out that the background color specified is being used and not the transparent one.

Note that transparency works only in PNG and GIF
Here's my steps on working with transparency:

1. Open the image with GIMP
2. Right click on the picture to display the popup menu and select the Layer->New Layer.... The dialog box New Layer will then appear and select the Transparency on the choices of Fill Type Type and click OK. The status bar of the image window will display New Layer , which means that your are currently on the new layer, you've just added.
3. Right click again on the image and on popup menu selection, select the Layer->Merge Down
4. After merging the layers, select the eraser tool from the GIMP toolbar or right click on the image and select from the popup menu selection the Tools->Paint Tools->Eraser. You can make a portion of the image transparent by simply using the eraser.

My output is here

oemlogo.bmp file shown in WinXP System properties folder

The oemlogo.bmp file which has a gray color on the border

The modified oemlogo.bmp file that has a tranparency which was save into PNG file