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Transparency is not applied to a raster or polygon layer when typing a value for %Transparent in the Properties/Display tab. The Adjust Transparency button on the Effects toolbar is also grayed out.
Your system's display properties are not set to true color. Transparency only works in true color mode.
Set your system's Color Palette to True Color:
1. Click Start > Settings > Control Panel
2. Double-click the Display icon
3. Click the Settings tab
4. Select True Color from the Color Palette dropdown list
5. Click OK