If you look across the surface of a lake you will not see the horizon reflected in the surface. There is no problem using transparent GIFs for the overlay parameter - in fact this is recommended. You can usually tell if a transparent GIF has been used because the top half of the applet will have parts which appear to be upside down. Some web browsers have trouble opening applets straight from a hard disk. I have noticed this happen with Internet Explorer 3 and Netscape 4.
Class files are binary files, just like image files are.
You should transfer them in the same way that you transfer image files. This is a very common problem. Your transfer program has changed the name. This does happen. Other will change the case of the letters to either all uppercase or all lowercase.