Turns out that the name doesn't accurately describe what it does.
It is correct for images that come with their own palette or are true color.
But for images using the game palette it doesn't use the red channel to determine translucency but the palette index! Ugh...
This means it cannot be done with a simple operation in the shader because it won't get a proper source image. The only solution is to create a separate texture.
This means it won't work anymore on anything that doesn't support OpenGL 4.0, but I don't think this is a problem. On older NVidia cards performance gains could not be seen and on older AMDs using the vertex buffer was even worse as long as it got mixed with immediate mode rendering.
