You've covered the fundamentals.
Except that "Match Internal" is not a setting, it is a command. When using the internal engine dialog to build a material as you have done, LightWorks won't change from whatever it was reading until you click the button. And this must be done every time you edit the internal engine material.
What I've learned from doing my seminars is that users fail to understand:
1: that the alpha channel is useful for bumps (mainly as shadows from shingle or siding edges) and creating transparent knockouts (say in knocking-out the spaces between leaves in foliage)
2: That your method of selecting areas uses the underlying image - the alpha channel can be arbitrarily drawn in for bumpy patterns or knockouts unrelated to the underlying image.
3: LightWorks defers to images with alpha channel masks - if you have an internal engine material with an alpha channel and check an alpha channel effect, Lightworks willuse this channel if you "match internal."
However, LightWorks doesn't need an alpha channel to create a bump map. It can create any effect using the RED channel in the image. SO, if you have an image lacking an alpha channel in the internal engine mode and switch to LightWorks ( matching internal) it will make the shingle bumpy.
4: Light Works and most superior renderers don't rely on alpha channels at all. This alpha channel behavior is a hold-ver to maintain the usefulness of old Archicad texture. What modern application do is employ a totally separate file as a maks - Look in the LightWorks parameters and you'll see a oplace for this file. "Matching Internal" will simply force LightWorks to refer to the internal engine image in employing the bump or transparent effect.
5: You'll also see that LightWorks can map images to form mirror and special color overlay effects.
So let me plug my book because it explains all of this in bettter detail. The pile is getting quite small, now, so I do advise you to order soon to avoid disappointment.
Dwight Atkinson