Using PNG with alpha channel is known to work fine in IE7 ... unless you also want to apply some opacity in a parent element (ex: if you want to use some javascript driven fadein/fadeout effect). In this case, the alpha data seems to be used as a on/off transparency layer.
A workaround consists of transforming the IMG element into a SPAN with the AlphaImageLoader filter (the usual trick to use PNG32 on IE6).
Test page Workaround is not included
Reported by: Herve Masson.
Explorer 7 | Reported on 9 February 2007.
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1 Posted by Charles on 19 November 2007 | Permalink
This is also an issue in IE6.
Another workaround (which I prefer): set the opacity of the IMG element to 0.99. The alpha channel will then be displayed correctly. I am updating my jQuery tinyfixPNG plugin to include this fix!