I find that Chosen's method is great for some things, but when I take avatar pics, generally, there is so much contrast between the skin and hair or skin and dress, that I end up losing the avatar's skin along with the background. Maybe I'm missing something....would love to know if that is the case.

Anyway, this is how I like to do it.
1. Take your pic on a flat coloured background (like your green screen). I take them at 1280x1024, and resize them to fit on a 512x512 at the end.
2. Se!ect --> Color Range --> Use the eyedropper to choose the background colour. Check the "Invert" box and click OK.
3. Se!ect --> Modify --> Contract. In the dialog box that comes up, I leave it at 1 px and click OK. (I'm hoping this was an option under PS 7 ... I can't remember now)
4. Then on the bottom of your layers palate click the layer mask icon. It looks like a rectangle with a circle in the center.
5. Sometimes I like to go over the edges (mask se!ected, not the image) with the blur tool. Not always needed since you'll be shrinking the image.
6. Right click on the layer mask and choose "Add Mask to Se!ection" (or CMD-click on a Mac). Have the image (not the mask) selected and copy. Paste into new background and Edit --> Transform --> Scale to resize to fit. You can also right click the layer and choose "duplicate layer" and in the dialog box under Document, choose your background file and this will copy your entire layer with mask and all onto your backgound if you prefer.
If you are taking pics of say your avatar in numerous colour versions of the same outfit for displays, just make sure not to move your camera when you take the pics. This way you can duplicate all your images into one file, and you only have to do the layer mask once in order to pull out all the figures from their backgrounds. Also, when you paste into the new background, use transform --> scale just the first time, and for the rest of the figures use transform --> Again, and they'll be in exactly the same size and position as the first.

@ Seshat
You might try creating a layer over your avatar image layer and set the blending mode to "Color". Then using the eyedropper tool, choose a color from your hair close to where the green is. On the blank layer you created, paint over the green bits, and it should take them out for you without removing the "hair texture".

Please excuse my use of ! for the "L" in se!ect. Wonky forums wouldn't post it otherwise.
