I believe they want the entire eye AND lid to be transparent.
In that case, load up an eyemask from media > textures > masks
(or feye.jpg, which I used):
And since I used a jpg, I need to right click the layer and Add Alpha Channel:
Select the entire top section, and delete it:
It looks like you're going for the right eye, so save it into your preset's folder as preset_#eyeR.png
(use the actual number of your preset, and it must be a .png)
Then load up the material file into notepad, and look for the right eye section (eyeMatR).
Replace it with this code:
material preset_#_eyeMatR
{
technique
{
pass
{
cull_hardware none
cull_software none
alpha_rejection greater_equal 128
texture_unit
{
texture preset_#eyeR.png
}
}
}
}
And make sure you replace my #'s with your preset's actual number.
Done and done.