three.js png textures not transparent when using colladaloader

Question

I saved a collada file from second life and am rendering it using 3js and colladaloader2. The image looks fine except for the part that is using the transparent texture file. The file is a png with transparency. The transparent part renders as white.

i am using REVISION:"78" of three.js

here is the code snippet

    <script src="js/three.min.js"></script>
    <script src="js/ColladaLoader2.js"></script>
    <script src="js/Detector.js"></script>

    <script>

        var container;
        var camera, scene, renderer;
        var group;

        var targetRotation = 0;
        var targetRotationOnMouseDown = 0;

        var mouseX = 0;
        var mouseXOnMouseDown = 0;

        var windowHalfX = window.innerWidth / 2;
        var windowHalfY = window.innerHeight / 2;

        var loader = new THREE.ColladaLoader();
        loader.options.convertUpAxis = true;
        loader.load('models/collada/ASB1/American_Saddlebred.dae', function(collada) {
            dae = collada.scene;
            dae.scale.x = dae.scale.y = dae.scale.z = 100.0;
            dae.updateMatrix();

            init();
            animate();

            function init() {
                container = document.createElement('div');
                document.body.appendChild(container);

                var info = document.createElement('div');
                info.style.position = 'absolute';
                info.style.top = '10px';
                info.style.width = '100%';
                info.style.textAlign = 'center';
                info.innerHTML = 'Drag to spin';
                container.appendChild(info);

                scene = new THREE.Scene();

                camera = new THREE.PerspectiveCamera(50, window.innerWidth / window.innerHeight, 1, 1000);
                camera.position.set(0, 50, 800);
                scene.add(camera);

                var light = new THREE.AmbientLight( 0xFFFFFF ); // soft white light
                camera.add(light);

                renderer = new THREE.WebGLRenderer( { antialias: true, alpha: true} );
                renderer.setClearColor( 0x333333, 1);
                renderer.setClearAlpha = 0.003;
                renderer.setPixelRatio(window.devicePixelRatio);
                renderer.setSize(window.innerWidth, window.innerHeight);
                container.appendChild( renderer.domElement );