Sprite in 3D bug???

Well, I had asked this question before in "biginner's" forum, but I still can't get rid of it, so I've decided to post it here, so people with more experience can see it:
So, I'm just doing the sprite test for my new game and I can see the edges! It's always on top, but the size depends on a sprite! I also can see it in M@#!*ie's games!
Here's a modified sprite example with mine sprite (PNG, alpha , 1 color transparrency, not interlaced):
http://www.anatoly-online.com/files/spritebug.zip
And for people who still don't get what I'm talking about, here's the picture:

HEEEELLLLLPPP!!! There are a lot of sprites in my new game!

Turn clamping on in the texture filters +16+32
loadtexture("",1+4+16+32)

CRAP! It's worked!!! (2+16+32 in my case) What does it do??? What is that "Clamp" all about? Any downsides?

No downsides in your case. When drawn to screen your texture is mipmapped, which meens each pixels is anti-aliased with adjaced pixels on the texture, turning the clamping on prevents this mipmapping from wrapping around. That distortion at the top of the sprite was actually the bottom of his feet.

It's clamping, it prevents the texture from wrapping like Becky says but it does not matter if the texture is mipmapped.

Great! Now I can finally work on a game! This was driving me INSANE during last month or two! Thanks to all for your help!

I had to crank up the brightness of the image all the way in photoshop to even *see* the problem.

Love that sprite.

I see that's another example of the filter at work ;)

Well, on a picture it's really hard to notice, but when you have it in a game with animation you could clearly see it! It was driving me CRAZY - I'm so glad that you helped me to find a solution.
As for the sprite - it's a character from my new game "Simon and Mr.Brown"... I guess you'll find out what Mr.Brown looks like.
I can't say anything else just because I haven't done much work on a game itself and I hate to talk about things that are not done yet...

LMFAO. Gotta love these forums.