Image overlay in WPF?

I am trying to Create anImage overlay, same size as the lower Image with transparent sections. The problem I am having is the transparent sections of the overlay show as black in the canvas or are never really set to transparent in the first place. The overlay is a property of the view model:

this.Logger.Trace("overlay get start");
Bitmap bmp = new Bitmap(this.imageWidth, this.imageHeight, PixelFormat.Format8bppIndexed);


System.Drawing.Imaging.ColorPalette myPalette = bmp.Palette;
for (int x = 0; x < 256; x++)
{
    myPalette.Entries[x] = System.Drawing.Color.FromArgb(x, x, x);
}
bmp.Palette = myPalette;

// Create a BitmapData and Lock all pixels to be written 
BitmapData bmpData = bmp.LockBits(
                     new Rectangle(0, 0, bmp.Width, bmp.Height),
                     ImageLockMode.WriteOnly, 
                     bmp.PixelFormat);

for (int iRow = 0; iRow < this.imageHeight; iRow++)
{
    Marshal.Copy(this.overlay, (iRow * this.imageWidth), bmpData.Scan0 + (iRow * bmpData.Stride), this.imageWidth);
}

// Marsha开发者_如何学JAVAl.Copy(this._overlay, 0, bmpData.Scan0, this.imageWidth * this.imageHeight);//this._overlay.Length);

// Unlock the pixels
bmp.UnlockBits(bmpData);

bmp.MakeTransparent(Color.FromArgb(255, 255, 255));
bmp.MakeTransparent(bmp.GetPixel(0, 0));
bmp.MakeTransparent(bmp.GetPixel(1, 1));

this.Logger.Trace("overlay get end");

MemoryStream ms = new MemoryStream();
bmp.Save(ms, System.Drawing.Imaging.ImageFormat.Bmp);
BitmapImage bImg = new System.Windows.Media.Imaging.BitmapImage();

bImg.BeginInit();
bImg.StreamSource = new MemoryStream(ms.ToArray());
bImg.CreateOptions = BitmapCreateOptions.PreservePixelFormat;
bImg.CacheOption = BitmapCacheOption.Default;
bImg.EndInit();

ms.Close();

imagesRec++; //for debug purposes

return bImg;

Here is the XAML:

<StackPanel Grid.Column="1" >
   <Canvas DragDrop:DragDropManager.DropTargetAdvisor="{StaticResource targetAdvisor1}" Name="CanvasObj" >
      <Image x:Name="CameraImage" Source="{Binding CameraImage}" VerticalAlignment="Top" HorizontalAlignment="Center" ></Image>
      <Image x:Name="Overlay" Source="{Binding Overlay}" VerticalAlignment="Top" HorizontalAlignment="Center" ></Image>
   </Canvas>
</StackPanel>

There is no need to do that at all; use a PNG format image with the alpha layer already filled in. The rest will "Just work".