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This would be better posted in the Photoshop forum because it is a question about images, formats and colors rather than DW specific.
However, the answer to your question is that JPEG images are always opaque. There is no transparency in the JPEG format. In order to best utilize transparency on the web you are limited to GIF, which has a limited color palette of 256 colors which is ok for basic images, or PNG-8 which is about the same as GIF, and PNG-24 which has a color range closer to JPG, however, because transparency information is saved in the PNG format you end up with a file that is slightly larger than a JPG without transparency.
Thanks for your help.
If you have the original .psd life becomes easier... Your options are as follows:
1/ If the new background is confirmed... use that in the master and save as a new .jpg
2/ If the background is under question but the direction is clear... eg. green... you can save as .png or .gif using transparency and using 'green' as a matte... Of course, if the 'green' swings between pale and dark you might need to have a few alternatives in hand
Thanks so much - have made a new doc with the new background. Problem solved!
Alpha-transparency on PNGs isn't supported in pre-IE7 browsers. If this is a concern to you, you'll need to find a PNG Fix script and add it to your web pages.