PRE 3 editing a picture with Photoshop ele 5

Hi All Im having trouble figuring this out. I have premiere elements 3 and Photoshop elements 5. Im making a video for you tube and now everyone has cool boarders or frames for there vids. Example 51 secs in this video http://www.youtube.com/watch?v=jH_vg4vpkKg
I made a frame for my vids but there is a white background in it when I do a freeze frame to edit it out it doesnt take away the white. http://i36.tinypic.com/143fask.jpg
I know I must be missing something very easy. Can anyone help me? Also I tried using the help in photoshop but I tried it there way and all I got was the same image again and not the edited one. Any help will do me a lot. Please and thanks.
I have edited pictures before and put them in videos but some how I cant remember how to do this.

In Photoshop Elements, double-click on the background layer in the Layers panel. This will turn the background into a layer. Then select the white inside of the frame and delete it. It will now be transparent (technically known as an alpha channel).
Save your file as a PSD and it will maintain the transparency. Place it on an upper video track in Premiere Elements and you'll have your frame! Voila!

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