layer merging works well if you can master tranparency, i like to use the background layer as a Matte (yeah it may be a gradient, not solid white). I tend to go to the history pallete and make a new document from current state, which i can flatten, knowing i can go back edit the layers of the orginal document.

with the selection active, go ahead and flatten it, go on, don't fret though - the selection remains active after the flattening? yes?
do the ol' duplicate layer, (control+j = pc? - command+j =mac). Navigate over to the layers pallette, throw the baground layer in the bin , yeah the tiny trash can icon in the layers pallette, and prepare to say boo-yaaa.

.deselect the selection if u want.

save you image as .png  .gif. .or whatever from there