Using DXT3 or DXT5 should provide the desired semi-transparancy, John. Although I have not developed anything for X-Plane, I expect the rules regarding DXT textures are the same in both FSX and X-Plane. Here is an excerpt from the FSDeveloper Wiki regarding DXT1 versus DXT3 in FSX:
In Flight Simulator there are two different texture formats, the DXT1 and DXT3 texture. The DXT1 texture has a 1-bit alpha channel, while the DXT3 texture has a 4-bit alpha channel.
This means the DXT1 alpha channel can only contain 2 color, black and white. All parts that have a black color in the alpha channel will become fully transparant, while all parts with a white color in the alpha channel will show as normal. This format can thus not be used to make parts semi-transparant.
In a DXT3 texture you can use up to 16 colors in the alpha channel, so you can also use different tones of grey. These tones of grey allow you to set parts as semi-transparant. The darker the grey color is, the more transparant it will become. Due to the larger size of the alpha channel, the size of the total texture is also bigger in the DXT3 format, so only use this format if you really need semi-transparancy.
To read the full article see: Alpha channel creation with Photoshop
I hope this helps.
Here are a couple of additional resources from the FSDeveloper Wiki. Again, I'm making the assumption that this information is applicable to X-Plane, too:
DXT compression explained
Texture formats overview
Finally, and importantly, here is an X-Plane-specific article regarding Texture Compression
The article shows the preceding FSX DXT texture information is equally applicable to X-Plane.