I have been messing with transparency to in Shade-C and it seems you have 2 options and maybe this will be of help to you:

1) One is when you either fully hide or show a part of the texture (bit like the OVERLAY flag in gs3d).

2) and the other is normal transparency.

For both you have to set the TRANSLUCENT flag for the entity, than in the shade-c .fx file you use in your material only uncomment '#define ALPHA' to get result 1 (OVERLAY like) or uncomment both '#define ALPHA' and '#define TRANSPARENT' for result 2. And your entity's texture needs to have transparent layer or an alpha channel (so use a .png or 32 bit .tga texture) otherwise it will be invisible.
What is pretty cool that stuff like shadows and emissive masks still seem to work correctly for transparent parts too, only gloss maps doesn't seem to work I think.

Here is an example of a .fx file for transparent material:

Code:
//------------------------------------------------------------------------------
//----- USER INPUT -------------------------------------------------------------
//------------------------------------------------------------------------------

//assign skins
#define SKIN_ALBEDO (skin1.xyz) //diffusemap
#define SKIN_ALPHA (skin1.w) //alphamap
#define SKIN_NORMAL (skin2.xyz) //normalmap
#define SKIN_GLOSS (skin2.w) //glossmap
#define SKIN_EMISSIVEMASK (skin3.y) //emissive mask
#define SKIN_COLOR (skin3.w) //(team)color mask

#define NORMALMAPPING //do normalmapping?

#define GLOSSMAP //entity has glossmap?
//#define GLOSSSTRENGTH 0.2 //glossmap channel will be set to this value if GLOSSMAP is not defined

#define ALPHA //entity has alphamap?
#define TRANSPARENT //entity alpha should be interpreted as transparent/translucent?

#define EMISSIVEMASK //use emissive mask? (formula: emissive_color = SKIN_EMISSIVEMASK * SKIN_ALBEDO)


//------------------------------------------------------------------------------
// ! END OF USER INPUT !
//------------------------------------------------------------------------------

#include <scHeaderObject>

//custom code goes here

#include <scObject>