1. your models are in MLOD format when you make them in o2; if you want to set them on some island they have to be in ODOL format, and thus must be binarized. use col. klink's binarize programme for it, it's basically only a GUI for BIS's binarize programme, but it makes the whole process easier
2. as for vegetation: there are lots of free-photo pages around on the net, try a google search. or just makes your own photos; note that the background (which shall be transparent later) must be easy to "unhinge" so to speak or you'll get problems with the transparent/non-transparent areas.
how you add transparency in detail depends on your graphic programme. search this forum for "transparent textures +
your programme", it has been answered 100 times before for each and every programme. if not, ask here
for converting your (semi-)transparent .tga files into .pac or .paa use feersum.endjinn's paatool v.1.1, gives me best results of all.
ahh.. in order to anticipate another of your questions- about the difference between pac and paa: pac has only one value for transparency: not transparent or transparent. paa can handle different degrees of transparency, e.g. like you see in windows, etc. but on the other hand not as many colours as pac.