Problems editing/importing pic, RPG 2003 Options

[Lato]

Ok im learning 2003 and am having some interesting basic problems importing edited pic. When I do a basic edit like change the hair color of a person with paint program and I go to import the pic it take away the light blue background of the edited char, but not the un edited ones, so its looks bad when I start the game.

Is there some different way to import pic then you do with XP? anyone know what im doing wrong.

[Holder]

Image>Mode>Indexed color...
It'll then prompt you that it'll flatten all the layers, and then present you with this box:

Make sure there's the limit of 256 unique colours set in there and for the Palette is Local (Selective)

I added a rainbow mix of colours to show you the sort of results you'll get if you have too many colours, if you're not happy with how it looks when the colour is limited try messing on with the Dither options.