Hi! :
I've only been using Photoshop since June, and was stumped for awhile on how to do this. I figured something out that works, although, I'm sure it's not the only way, or even the best way. It works, though. I always make sure I've working on a duplicate of my original photo, though.
Try this:
Make sure that the photo is in it's own layer, not the background, click on your marquee tool and set the feather to the desired amount. I've been using 250, the maximum, but I've been using larger photos. Then, use your marquee tool to make a selection around the main part of the photo that you want to really show, not fade. Next, go to select > inverse and then delete to clear the background. I usually clear it a couple of times to take most of the background away. Adjust the opacity of the photo as desired to acheive the look you are looking for.
I used this technique for the following LO in my gallery (which I hope links):
Play
Hope this helps!
Daveen
aDCoriginal