Toolbar Image Distortion

I have an image that i want to use as a toolbar image. Its been created with
a transparent background in Photoshop. I have tried saving it to both a png
and a gif format and loading them into an image list and reference that for
toolbar button images.

In either case whenever i display it in the image is rendered with blue
swiggles/distortions around it.

There is any work around for this problem?