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When an ArcMap Service is added to ArcMap, the background of the service is no longer transparent even though there may have been no background color set for the service.
ArcMap is not registering the background of the ArcMap Service as transparent when the service is initially added to the map. This is true even if there was no background set for the service. In such cases white is the default background.
To make the background of an ArcMap Service transparent, a new background color must be set for the ArcMap Service layer.
The ArcMap Service Layer is the U.S. States. The background of the ArcMap document the service is based on is the default white. When the service is added to a map document with an existing layer the background of the ArcMap Service layer is not transparent.
The Advanced Tag of the Layer Properties dialog for ArcIMS Services
Arctic White is in the top left corner.
The background of the ArcMap Service is now transparent.