You will probably achive the best quality using an image format that uses an alpha channel (TIF, PNG, PSD), as sugested by GRiMAge in post #4. If you do paste the image into a square prop as sugested by beryld in post #2, it's usually best to set the Object and Highlight colors to balck, and the Ambient color to white. This makes the square prop indipendant of the lighting and shadows in in the document window. The technique of of pasting a background image into a square prop does have some advantages, you can for example tweak the apparent perspective by tilting the square.