Overlay files either need to be in the format of a PWML file, a PCL file or a graphics file (TIFF, JPG, GIF, WMF or BMP). The problem with the graphic file formats is they may not appear clean if they were not scanned or created at the proper resolution for the printer, including the proper offsets for margins, etc. This may be a problem if you plan on moving this overlay between specific printers. A better approach is to utilize a PCL file if you can.
Another possibility is laying out the overlay with PWML (Print Wizard Markup Language). This may help you come up with a much cleaner overlay file.
If you do continue to have problems or want some help with PWML, give us a call.