The final image result now looks like the first attached image(which looks like the first image in the original post).
Not that sexy eh? Rather boring right? True dat.
Now, let's begin to play with our existing layer mask to see what we can do with it. The good thing about layer masks is that you can edit them by "painting" either white or black to edit how the underlying layer shows up. Remember white shows through and black does not with anything in between being partially shown. So... let's get some variable color to show through and get rid of the hard line transition between the two colors.
In order to do this, Select the layer mask on the layer in question:
Note than when selected the thumbnail, either the layer OR the layer mask will have a slight white outline. In this case, we have the layer mask selected, so any operation we do will affect the mask, NOT the layer. What we now want to do here is apply some Gaussian Blur to get the two colors to blend. I used around 300 px blur to get to the final image.
Now, remember since we are not affecting the layer itself, this is a totally non destructive technique. Had we used the same technique as in the original post's second example, and blurred the color/alpha layer, then that layer would be permanently altered, and thus we would loose a lot of flexibility. However, since we just modified the layer mask and not the original layer, we have the blur but with no changes to the underlying layer.
You could do all sorts of other things such as directly painting white onto the layer mask, which would allow the layer to show though.
ONE THING THAT IS VERY IMPORTANT: When you want to modify actual layer the make SURE you have clicked on the layer thumbnail icon, or your will be modifying the mask. Likewise when you want to modify the layer mask itself.
You could also use a layer mask to create a gradient, again, without using any destructive techniques. In order to do this, I am going to delete the existing layer mask and add a new one. However, this time, I will select the "Black" radio button. Now, select the layer mask and change the foreground/background colors back to black/white. Click on the layer mask in the Layers dialog and select the Gradient tool. Now, apply the gradient to the layer mask. Note how the layer mask
is not a gradient and how the base image follows that gradient to merge the two color layers? This is the effect we are after. Now, again, we can change either color layer directly and the gradient effect would remain exactly as it is now, just with different colors, and that is the power of layer masks.