So I've made a new armour texture by recolouring an existing one. So far so good. The icon file, though, is giving me trouble. Even if I extract it with KOTOR Tool and place it straight in the Override directory without editing it all it still appears to lose its transparency, so all the background behind the picture is pure black (http://i43.photobucket.com/albums/e356/TamerBill/TheRootoftheProblem.png). What am I doing wrong and how can I avoid this?

You Need To Pu Your Icon On A Transparent Layer In Your Graphic Editor And Then Edit It Like This (http://www.geocities.com/davies.ryan_93/123.bmp)

-DarthDingDong

Open the icon tga in photoshop or what ever you use and add an Alpha channel to the rgb make the part you want to show white and the rest black.

If thats not enough information then do a google search for Alpha channel tutorials.