You'll need:
PSP, Dxtbmp as mentioned above (
http://www.mnwright.btinternet.co.uk/pr ... dxtbmp.htm)
The way I do this, is to start off with the normal texture bitmap you want to add alpha to, then save it as *name*_A.bmp or some-such, so you know its the bitmap you will use as alpha. I save mine in the same texture folder as the normal bmps, (but remember to remove them once the repaint is ready for release as they arn't needed)
All you do its colour the parts you want matt, white, the parts you want pure chrome, black. and for other laveles of relfection, use any shade of grey in between.
once you have finished the alpha bmp, load dxtbmp, and open your normal texture bitmap
Then click on the "alpha" menu and "import alpha layer". Browse to where you saved the alpha bitmap, and open it.
Thats it, just save as dxt3 or 32bit (or if you need, dxt1 with alpha)
Hope that helps, if you get stuck anywhere, post back, or pm me.