Buttons, yep you can do that.
Easiest is to drop in a standard courselab button and then go into it's properties where you can chnage the normal, onselect, mouse over images to your own. You can also change the actions associated with the button.
I always use pngs and have done for quite a while, I do rather like the jpeg2000 format as it does have some very cool functionality. I have a module with 100 base images and a few overlays on each, all pngs with transparency which work fine.