The above changes do not be made, so there is no need to alter the fx file.

To fix this problem I had to make sure that default.fx and common.h were in my project folder and included to the script - The big problem was that I had not realized I was supposed to add a material to EVERYTHING in the level. So i added mtl_leveldefault, and everything worked great from there

You need to look at 07.c shadec sample and have a look at 06_transparent.fx (mtl_carWindow) to see how transparency (alpha channels) is handled.