it looks like the texture is not using (or doesn't have) Alpha channel (or what ever you call it =S
It's a gfx card issue, try updating your drivers. You can also give glide64 with a glide wrapper.
Desktop: AMD Phenom II x4 970 3.5ghz, 8 gigs DDR3 1600 ram, 1tb hd, Radeon HD 6870 1gb
Laptop: Intel i7 720Qm 1.6ghz, 4 gigs DDR 3 ram, GeForce GTS 360M, 500GB HD