Ok I think got the transparency working but now shadows on the object act all weird, any solution to this? (ps ignore the ugly unwrapping of the tree skin ):


So far this what I did:
- create an alpha channel for the skin (note this is not the same as an alpha layer)
- add these lines to the shader .fx file you are using:
#define ALPHA //entity has alphamap?
#define TRANSPARENT //entity alpha should be interpreted as transparent/translucent?

, yes this could be a possible alternative. The transparent leaves maybe can't give shadows, so the tree would have to have some dummy leaves for shadows or a alpha layer / png skin for shadows. Maybe I just create real 3d leaves for the model.