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Solve : photoshop 7 trasnparency problems?

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Hello.

I'm using Photoshop 7 to put together cut and paste PICTURES with text layed out next to and around them on a white background. Simple stuff.

Problem is when I delete or cut anything photoshop remembers the area that was cut or deleted as a grey patch - transparency setting I guess. The patch / patches are not visible except when printing (network b/w epson PRINTER).
I have tried lots of things to get rid of this with little success:
flattening image, saving as pdf, changing colour settings, new background layer with white fill, fiddling with the preference settings...
My only successful method is to SAVE as a Bitmap but the resolution is unusable and I can't save colour images.

I'm using Windows XP.
On my OSX mac at home this doesn't happen.

I'm guessing that there is some simple(ish) button that I've just missed.
Any help or suggestions gratefully received.



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