The reason for this is that the animation frames are created in a buffer image. If the original image is large, then the frames image will be very large. I'm thinking about changing the applet to create the frames in real-time in these instances. However, the speed may be slowed down sufficiently that a blank applet might be seen to be preferable. There is no problem using transparent GIFs for the overlay parameter - in fact this is recommended.
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.