blend two uiimages based on alpha/transparency of top image

This is what I've done in my app, similar to Tyler's - but without the UIImageView:

UIImage *bottomImage = [UIImage imageNamed:@"bottom.png"];
UIImage *image = [UIImage imageNamed:@"top.png"];

CGSize newSize = CGSizeMake(width, height);
UIGraphicsBeginImageContext( newSize );

// Use existing opacity as is
[bottomImage drawInRect:CGRectMake(0,0,newSize.width,newSize.height)];
// Apply supplied opacity
[image drawInRect:CGRectMake(0,0,newSize.width,newSize.height) blendMode:kCGBlendModeNormal alpha:0.8];

UIImage *newImage = UIGraphicsGetImageFromCurrentImageContext();

UIGraphicsEndImageContext();

If the image already has opacity, you do not need to set it (as in bottomImage) otherwise you can set it (as with image).

UIImage* bottomImage = [UIImage imageNamed:@"bottom.png"];  
UIImage* topImage    = [UIImage imageNamed:@"top.png"];
UIImageView* imageView = [[UIImageView alloc] initWithImage:bottomImage];
UIImageView* subView   = [[UIImageView alloc] initWithImage:topImage];
subView.alpha = 0.5;  // Customize the opacity of the top image.
[imageView addSubview:subView];
UIGraphicsBeginImageContext(imageView.frame.size);
[imageView.layer renderInContext:UIGraphicsGetCurrentContext()];
UIImage* blendedImage = UIGraphicsGetImageFromCurrentImageContext();
UIGraphicsEndImageContext();
[subView release];
[imageView release];

[self doWhateverIWantWith: blendedImage];