You can theoretically draw the image with transparency because you can use the ImageAttributes class to draw an image with a color range that is transparent. As others have said, JPEG is a lossy format, and your area of pure white will be turned in to blocks of various similar shades of white by the algorithm, that's why a range of whites would be needed. As was also said, PNG supports an alpha channel, which means .NET can just draw it with a transparent area.
Christian Graus Driven to the arms of OSX by Vista. Read my blog to find out how I've worked around bugs in Microsoft tools and frameworks.