Thanks - I took a look at the file you sent. It has pixels with alpha values in the unused frames in the bottom row, so Hype will not convert to a jpeg because of detecting this. If a sprite sheet has an exact number of frames to fill the whole file it actually wouldn’t be a problem.
When Hype constructs a Sprite Sheet, it does not use a background fill in case the frames themselves have alpha components. It seems like we should look at the individual frames; if none of them have an alpha then we should apply an opaque background fill so that it can get optimized as a jpeg down the pipeline.
I’ve filed this as a bug. Thanks!