Hey Mikey1968,
I have followed your instructions and met with success for the most part. I saved the entire file again so if I messed up I'd be able to try again. I advanced the transition about 5 frames and then inserted a keyframe. I then inserted the hat pieces as the final image, erasing the pieces of artifacts. It worked and I uploaded it to Dropbox. There were still some flaws in it so I decided to go back to the first copy and try it over without using the 5 frame lead in. The first two worked but the rest (4) did not change into hats.