Hmm. Assuming the model looks okay in AC3D and just looks funny in T.ED, this really more of a T.ED question.
According to the T.ED forums, you need to add:
textureflags=a-part-of-your-filename,11
(if using PNG/TGA with alpha channel)
See:
http://www.freeforum101.com/forum/vi...mforum=dgrafix