Biggest thing I see is the dithering. Dithering typically doesn't work well at all on something so small, usually you'd dither to give the illusion that there's an in-between color, but in this case the contrast is too high and the area too small for it to work. Also, the colors are very bright and saturated, I would tone it down, unless you're going for the retro CGA look...
And as for graphics gale, I guess it could be a lot of things, are you changing the transparency of the frame, as opposed to the layer? I believe only the former will get you transparency when saved.