Ah so your image have no proper alpha ?
This is a problem you have to fix, and keep the blendfunc to the one I proposed.
Maybe just doing glColor4f(1.0,1.0,1.0,0.5) to make stuff uniformly half-transparent.
Can you show does this do exactly :
SetAlphaMatch(TRUE, 0.1, 0.1, 0.1);
Is that an exact match ? Or that any texel darker than this will be transparent ?