Hi Tony (may I call you Tony?)
Firstly, that flatten image screen is normal; press export and move on.
I usually work on a completely transparent background, sometimes with many layers. It's important when doing this to take all of the magneta out of any source image you're working with, as it won't index properly when you get to that step. There are many ways to do this, including the slow "one pixel at a time" technique that I employed when I was just learning how to do this. Nowadays, I use the Color Select Tool and click on the magneta then Cntrl -> X it out of existence. If you get a white background when you do this, you're not actually on a transparent background. Go back (Cntrl -> Z) and Select -> All, Edit -> Copy the image and then recreate it: File ->Create -> From Clipboard to get an image on a truly transparent background and then highlight and erase the magneta.
Sometimes (well, usually), there are some almost magneta colors left over; I used to remove these one by one as well, but I've learned that you can instead turn them to shadow by going to Colors -> Hue-Saturation*, and click the little white dot next to the M (magneta) then slide the saturation bar until the magneta turns grey. Now you should have a magneta-free image to paste into or use as your primary project.
When your image is ready to index, go first to Image -> Merge Visible Layers there, you want to check Clipped to Image and Discard Invisible layers.
From there, your steps are:
1. Select -> All, Edit ->Copy
2. Image -> Mode -> Indexed, click Generate Optimum Palette; Maximum number of colors: 256
3. Windows ->Dockable Dialogues -> Colormap
4. Click on the last color square on the lower right. If its number is under 256, click the + sign to add squares until there are 256 squares on the colormap. Then right-click on color #255 to bring up a little menu and click Edit Color and in that window. Change the color to neon green by changing the HTML notation to 00ff00. click OK. Then go to square #256 and change that square to magneta the same way, using HTML notation ff00ff. The good news is that Gimp will remember that you made these colors and will save them as options for later.
5. Now before you close the colormap, click one more time on the magneta square to set it as the foreground color in your toolbox.
6. By doing all this, you may have changed some colors in the image; now's the time to Edit-> paste the copy you left on the clipboard in Step 1 to return your colors to their original glory.
7. Now click on a transparent area with the Color Select Tool to highlight all of the transparent areas. Assuming that your foreground color is still magneta, Cntrl -> , (comma) will fill all of the transparent areas with magneta.
8. Now save the image as a pcx.
I find that the Hotkeys are handy. My favs are:
Cntrl -> Z = undo: repeating allows you to go back as far as you want
Cntrl -> X = erase highlighted area (sends it to the clipboard)
Cntrl -> V = paste from clipboard
Cntrl -> , = fill highlighted area with foreground color
Cntrl -> C = copy to clipboard
I hope that somewhere in there is an answer to your problem, Tony. Welcome to CFC!
*(this doesn't work on indexed images; only RGB mode)
