Alpha transparency in indexed-png images

I've finally found the actual answer: There is a metadata entry that allows you to define the alpha value of each colour in the colour table. Most graphics programs don't make use of this, but it does exist and can be used, in particular by GD.

Another option besides fireworks is pngquant, a command line application that will convert a rgba png into an indexed png with transparency.

I found this post which talks some more about how to use it.

IE6 and earlier in windows does not support variable transparency PNGs without annoying workarounds. An indexed PNG will only show the fully opaque parts which usually works pretty well. A drop shadow would disappear but the opaque parts of the logo or icon would continue to show.

This page has a better explanation and instructions with more png compression and quantization tools: http://calendar.perfplanet.com/2010/png-that-works/