OTG will not generate chunks (correctly interpret) areas of an image which have alpha layers (transparency) in the *.PNG file.

The image size is 1/4 size or actual world size has no effect on image generation the problem appears to be isolated to images which use transparency. In Terrain Control this was never a problem from my memory.

However, this issue prevents images which have no pixels (transparency) from correctly generating the FillBiome (Ocean) and instead the image generates oddly and where there is transparency more often than not the chunk will not generate leaving anything but a void.