Ah, I think you've misunderstood what I meant there. The steps I'd recommend are:

1. Use fuzzy select with feathered edges to get a pretty good selection of your background.
2. Use colour to alpha from the Layer->Transparency->Colour to Alpha menu option.

The advantage of using colour to alpha is that you can vary the threshold on your fuzzy select, but you'll never completely get rid of any colours you accidentally select. I find it gives me the smoothest edges when cropping images out to use as tokens.

I entirely agree that using colour to alpha on the whole layer is a bad idea and definitely to be avoided.