Though it’s easier to use than the Pro version, Final Cut Express is overkill for most of our harebrained video ideas. You can add basic two-layer compositing and matting effects to iLife ’06’s iMovie HD (but probably not iMovie ’08) with GeeThree’s Slick Effects Vol 4 ($49.95, www.geethree.com). Once you install the Slick Effects pack, you’ll see the new goodies in iMovie’s Effects library (under Editing > Video FX > GeeThree - Slick 4).
1. Preparation Station
Slick works around iMovie HD’s one-video-track limitation thusly: You add a clip to iMovie’s Timeline, and when you apply the Slick filter, its configurator prompts you to select a clip from the Finder to use for the overlay - so it’s best to trim your overlay clip for length before you apply the filter. Load the clip into QuickTime Pro or iMovie, trim it, and resave in its native video format. Or, a better one - just don’t add any compression yet, as that’ll decrease the clip’s quality. You can scale and reposition the overlay in the Slick filter dialog, so don’t worry about that yet, but feel free to manipulate the clip with iMovie’s color filters, or rotate and/or flip the orientation in QuickTime Pro, where the Movie Properties window (Window > Movie Properties, or Command-J) provides handy Flip/Rotate buttons.

D’oh! You posed for the wrong side of the brisket - no worries, you can flip the clip in QT Pro.
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2. Bring in the Background
Drag the background clip into iMovie’s Clips browser, and then into iMovie’s Timeline. Click the Editing button, then the Effects button, then scroll down to the GeeThree - Slick 4 folder and press the VidMix icon. Click the Configure button to summon the dialog box with VidMix’s controls and overlay-clip picker.

Click Configure to load Slick’s custom filter interface.
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Click the Choose Overlay Movie button, navigate to your overlay clip, and click Open to import it. Now click in the colored box labeled Color To Replace; in the Color Picker that pops up, click the magnifying glass icon and use it to pick a color to remove from the Overlay Frame. Use the sliders to adjust the color tolerance (Closeness), fringing (Choke), and the cutout’s edge smoothness (Smoothing). Use the Overlay Scale slider to adjust the scale of your overlay clip, and click and drag in the Overlay Frame preview to reposition the overlay clip. Click OK when you’re satisfied with the Composite preview.

Slick’s simple tools do an excellent color key-out job.
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4. Lock It In
Back in iMovie’s interface, set the Effect In slider at the far left (00:00) to start the effect at the beginning of the clip, or just set it wherever in time you want the effect to begin. Set the Effect Out slider the same way. For example, 00:00 stops the effect at the end of the clip, 01:30 stops the effect one minute, 30 seconds from the end of the clip. Click Apply to render the effect.

Peg the Effect In and Effect Out sliders to the start and end of the clip, respectively, to give your whole clip the green-screen treatment.
Links:
[1] http://www.maclife.com/article/advanced_green_screen_editing
[2] http://www.maclife.com/article/make_and_use_your_own_green_screen