Help with Alpha Channels/Light Map for Game Objects

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Alpha channel is the transparency channel. In the layers tab, you can select the layer you want to add an alpha channel to, right-click it and select the option "Add Alpha Channel."

I have never modded the Sims games, but I think you should have no issues using Gimp. In fact, I think Gimp has more features than PS Elements, but maybe is missing a few non-destructive stuff like layer adjustments.