I'm pretty sure only 8bit format works in the CFS2 terrain engine. You can use imagetool from the FS2002 terrain sdk to convert images to 8bit , its really good because it runs in batch mode so you can proccess a lot of textures with a single batch line
Code:
imagetool -batch -8 *.bmp
output files get the suffix .mip so a rename batch is also needed.
DXTbmp by Martin Wright is handy for getting at the alpha channel for editing.
The default CFS2 shore lines are an example of 8bit with alpha for transparency mask at edges.
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