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You have to trick the eye. If you look at circle skins for buttons, you will notice they have a black ring on the outside or inside of the visual circle to cover the square edges.
There is no true way to mask-off a texture. I have asked for this in the past but was told that the graphics engine the UI uses would have to be re-done, which would be low-priority since the existing engine works fine for Blizzard's UI.
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