Try using what phant said or env_sprite. Don't set any rendering or scaling options.
IMO try removing this completely and see what happens and also try to spawn entity with dllfunc_spawn:
PHP Code:
set_pev(ent, pev_solid, SOLID_NOT);
set_pev(ent, pev_scale, 0.5);
set_pev(ent, pev_renderfx, kRenderFxDistort);
set_pev(ent, pev_frame, 0.0);
set_pev(ent, pev_rendermode, kRenderFxDistort);
set_pev(ent, pev_renderamt, 0);
__________________