I have a pngs of an eagle and a star. They can be seen in the uploaded picture below. I know for sure that they have absolutely no outlines and are completely white. For some reason when the document is exported or in full screen mode there is an outline around them. I tried knocking out a test shape to see if this outline would occur but it did not, therefore if I could just knockout these pictures then the problem will be fixed. I tried selecting them with the grey box and knocking them out, but I just end up knocking out the box that the image is in and not the eagle or star themself. How do I knock out just actual shape of the png itself? Please help me out. Thanks!!!
PNG is probably not the best format for this.
You could draw the stars directly in ID and give them a fill of Paper, but the eagle would be more difficult. If you can't find a vector file for it, try converting to a Bitmap mode .psd or .tif.
Don't use png for geometric forms nor for print. Don't use any pixelated file type for geometric forms.
I suppose the art work was created in Illustrator, so use the AI file or a saved PDF/X-4, both would give you much better results in aspect of resolution, crispiness and also easier handling of color.
When it comes to problems around pixelated transparency it could be related to that: http://indesignsecrets.com/eliminating-ydb-yucky-discolored-box-syndrome.php