Larry, David wrote the software so whatever he says, listen to him. To use the transparency model for an underbase you must "Import" the Photoshop single layer PSD file, not "Open" the file. Then you get the underbase from transparency dialog box. This is the way I do it and what I meant by it is all in the way you bring your artwork into FastRIP.
By the way, you don't want to flatten the PSD file to get a single layer, that will kill the transparency layer. You want to merge the layers down to one layer with a transparent background. (Did I say that right David?)