If you want to use "background transparent" to see through to
the stage behind, then you need to have DTS checked. Otherwise you
can use a camera.backdrop to place a bitmap image behind everything
else in the w3d scene. That way you can have a static background
image in w3d, but leave DTS on.
I'm guessing on "deformed"... the texture you use for the
backdrop may not be sized correctly. Textures should be created in
powers of 2 (128 x 128, or 4 x 256, etc). That way they will not be
automatically scaled when you create the texture. Note that you can
also scale, rotate, position (loc), and blend backdrops and
overlays. Can you post an image of what is wrong?