Only the image files and inf files are needed for the geoconvert process. You can disregard all of the other files.
As for blank (all grey) tiles, are you referring to image files that some tiles are missing? With those, you can use Gimp or Photoshop to alpha those areas. There are instructions in the Wiki that show this technique using Gimp. It's not that difficult to do but takes some time.
It looks like you are well on your way now 
It does take some trial and error using alpha layering. This works best where there is water involved and there are no image tiles (this mostly happens around shorelines). The easiest way to blend is to fly the area first taking note of the water color of the default (low-res) scenery before you add yours, then find the area on your images that match best with the default water color and make your "alpha-cut" there. This way what you are cutting from your images and the default shows in its place blends nicely. There are other ways to do this but this is an easy rule-of-thumb that should help you produce great results.
Just spent several hours with gimp. Thanks for the tutorial Jeff. I knew of the tool but had never used it as I was familiar with some others already. They however couldn't cope with such massive files, so this was a nice opportunity to get into gimp. Its very powerful. Who needs photoshop?
Currently working on the Isle of Skye - soooo much coastline masking. If its any good when I'm finished I'll put it online for others.
