The original PNG transparency test gives a lot more information on the problem
Summary:
Some big-name programs (Internet Explorer, Adobe Photoshop) cannot correctly open 32-bit (24-bit color, 8-bit alpha) PNG files with alpha channel transparency. The below image has a yellow background that should be transparent, but is visible in broken programs.
8-bit color with transparency

 32-bit color with transparency

 How it looks in broken programs
This PHP code will generate the above image:
<?php
$Image = ImageCreateTrueColor(80, 40);

$back  = ImageColorAllocate($Image, 255, 255, 0);
$red   = ImageColorAllocate($Image, 255,   0, 0);
$green = ImageColorAllocate($Image,   0, 255, 0);
$black = ImageColorAllocate($Image,   0,   0, 0);

ImageColorTransparent($Image, $back);
ImageFilledRectangle($Image, 0, 0, 80, 40, $back);
ImageArc($Image, 20, 20, 32, 32, 120, 0, $red);
ImageString($Image, 5, 20, 20, "hello", $black);

ImagePNG($Image, "c:/bad.png");
?>
Some software has recently (shortly before May 2004) been upgraded to work correctly. This is the compatability list according to my latest information (email me if you have any updated compatability information)

8-bit works, 32-bit is broken:Both versions work correctly: