The same texture can be used. I'm curious if the reflection slot is causing the error. It's not needed, and iirc, not used by the 3d engine.
In the Diffuse and Opacity slot, ensure the mono channel is set to Alpha and alpha source is Image Alpha.
As for your opacity, I suppose you have the alpha set correctly, so in that case, what DXT settings did you use when saving to DDS? DXT3 or 5 can be used. I myself, use 8.8.8.8 ARGB though.