elgg converts png files to jpg files, and jpgs do not support transparency. Why would anyone want to convert png to jpg? <sigh> yet another Internet Explorer bug - older versions of IE did not display transparent backgrounds correctly. So elgg fixes this by making the backgrounds look bad in all browsers.

"When he has nothing and I have nothing - thats equality" Khieu Samphan, president of the state presidium of Democratic Kampuchea.

also slightly depressed by this, but not an end of the world issue. Add it to trac and it might be dealt with for a later version.