I can use PNG in any static code I use in the site or theme but I can't use it in anything that XOOPS generates.
for example in themes I use .png in my banners and custom blocks. but they don't work as news topics.
they do work for download topics if you look www.jointgamers.us in downloads the topic images are .png
if you look in news the topic images do not show up in netscape I see an "alt link" and for IE I see empty placeholder.