Best way of displaying transparent images

I would also be very interested in seeing how this (http://www.visualbasicforum.com/showthread.php?t=100028) is done, as this is exactly what I am looking for. I am trying to write a green screen type capture program, I can capture the image and remove the green but the edges are too jaggy. I want to make a mask (black and white) then creat a blur to soften the edges and use the mask as a transparency mask.

To blur the edges of an image use a varying opacity with a PNG. You can then display the PNG with GDI+.