In order to create a DHTML Menu with a transparent background, there are three places where the background must be set to transparent:
1) Select (highlight) <Top-level Menu> in the menu tree, go to Popup Menu – Background, and check Transparent.
2) Select (highlight) all menu items (Edit > Select > All Items), go to Menu Item – Background, and check Transparent for both Mouse out and Mouse over.
3) With all menu items still selected, go to Popup Menu – Background, and check Transparent.
Here is a sample menu with a transparent background: