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Open a new file with a transparent background. Create a new layer and call it "frame". The frame used here is a freebie from Creative Memories (see link in right margin of blog). Load your frame into this new layer.
Then make a new layer and label it "photo". Place your photo on top of the frame, sizing it as desired.
Then move the frame layer up on top of the photo layer.
Then use your eraser tool. I used a couple of different opacities and a couple of different brushes to get this effect. To get that scratchy look I used an eraser tool shape in Paint Shop Pro called "surreal". Erase all the frame from the focal point of your photo, and erase some of it from the edges.
To keep the transparent background, save the file as a .png.
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