display error, png with transparent background

[BashBedlam]

This works as expected on my system. Will you please post enough code to produce the problem?

import pygame
pygame.init ()
SCREEN = pygame.display.set_mode ((300, 100))
TRANSPARENT = (0, 0, 0)

def create_image(file, color=None):
	"""
	Create image from a file.  If color is specified, replace all FOREGROUND
	pixels with color pixels.  Modify image so TRANSPARENT colored pixels are
	transparent.
	"""
	if color:
		# Recolor the image
		image = Image.open(file).convert("RGB")
		for xy in product(range(image.width), range(image.height)):
			if image.getpixel(xy) == FOREGROUND:
				image.putpixel(xy, color)
		image = pygame.image.fromstring(image.tobytes(), image.size, "RGB")
	else:
		image = pygame.image.load(file)
	image.set_colorkey(TRANSPARENT)
	return image.convert_alpha()

paddle = create_image ('paddle.png')
while True :
	for event in pygame.event.get () :
		if event.type == pygame.QUIT :
			pygame.quit ()
			quit ()

	SCREEN.fill ((0, 0, 0))
	SCREEN.blit (paddle, (70, 40))
	pygame.display.update ()