There are transparent character and background graphics on Neo-Geo in a sense, but they're all done manually by the artist, and there is no semitransparency interaction among characters and the background. For example, you might see a "semitransparent" energy field surround a character during a super, but only the character will show through, not the background. But this doesn't mean that Neo-Geo supports transparency any more than Donkey Kong Country shows that SNES supports rendering 3D models. It's all done by the artists, and SNK/Playmore has some of the best old-school pixel artists in the business. The fact that they make stuff look so good without relying on hardware tricks just means they're damn good at what they do, not that everyone's lying to you about the Neo's hardware.