You must end with .php for the file to be displayed in the drop down option in the Templates section.
Create your template with your utf-8 compatible html editor, the way you want.
Then be sure to eliminate all tabs and spaces to avoid disrupting text-only mail readers.
e.g. see the layout of /modules/Newsletters/templates/Red_River.php.
Be careful with stylesheets - many people use IE which may not display .css layouts consistently.
e.g. Red River may look like four red boxes in IE but will display correctly in Firefox.
Best to use VERY SMALL images for decorating themes.