Also, you can use PCX and BMP save formats to import. PCX is useful if you are doing a 256-color Masked Texture (a Masked P8 texture in Unreal Engine terms). Masking is, in general, more effience and easier on your computer then Alpha-Layer transparency, but the cost is it looks worse.
If using Paint Shop Pro 8, I've noticed issues trying to import PSP8 Targas into the editors. I always get artifacts left over from it.. For non-alpha textures, I export them from PSP8 as a BMP, which I've found works well. If I'm going to mask the texture, I export it as a PCX formatted image.
Edit: fixed a sentence to make more sense.