Alphablending you can use in the way:

1/ make bitmap32 with alphachannel (8bit)
2/ load it int DXImageList
3/ turn on hardware acceleration (like prototype project)

when all is correct, blending works as well. (Exotic formats like R4G4B4A4 doesn't works).

When you make copy from DDS, I am not sure that is copy with alphachanel, I take that is in 24 bitcount only

Sincerely