Concerning alpha blending, png images, which are used for the skin, do not only have red green and blue information per pixel but also a transparency value for each pixel, the alpha value (ARGB). But VLC Skins2 does only render totally transparent pixels as transparent, all other semi-transparent pixels are drawn as when one put a black pixel underneath the transparent one, so basically alpha-blending is that pixels can be not simply fully-transparent or not transparent but semi-transparent.
Here an example image, left side how it should normally be rendered and is obviously rendered by the browser, right side how VLC would render it.
Concerning WMP Conversions, that's just a matter of copyright one cannot just go and convert a skin to VLC if he has not the permission of the author.