Yes, it should be transparent. I did a project for one of my friends and it largely depended on this kind of transparency. We wanted a transparent but still clickable part on the form and I did it in this way. But i am getting confused by statments from MSDN.
Property Value
A Color that represents the color to display transparently on the form.

Remarks
When the TransparencyKey property is assigned a Color, the areas of the form that have the same BackColor will be displayed transparently. Any mouse actions, such as the click of the mouse, that are performed on the transparent areas of the form will be transferred to the windows below the transparent area. For example, if the client region of a form is made transparent, clicking the mouse on that area would send the event notification of the click to any window that is below it. If the color assigned to the TransparencyKey property is the same as any controls on the form, they also will be displayed transparently. For example, if you have a Button control on a form that has its TransparencyKey property set to SystemColors.Control, the control will be displayed transparently unless the BackColor property of the Button control is changed to a different color.

Windows 2000 Platform Note: Transparent windows and regions are only supported under the Windows 2000 operating system.