Just wanted to let you know that I asked Matt about this at SMX last
week (I'm a big fan of accessibility and image replacement, so I was
curious about some of the same things you've brought up in this
thread). Craig is correct in saying that your intent (in hiding text,
or in using any technique that has the potential to be abused) is
important. If your intent in hiding text is to deceive the search
engines, we frown on that; if your intent is purely to improve the
visual user experience (e.g. by replacing some text with a fancier
image of that same text), you don't need to worry.

Of course, as with many techniques, there are shades of gray between
"this is clearly deceptive and wrong" and "this is perfectly
acceptable". Matt did say that hiding text moves you a step further
towards the gray area. But if you're running a perfectly legitimate
site, you don't need to worry about it. If, on the other hand, your
site already exhibits a bunch of other semi-shady techniques, hidden
text starts to look like one more item on that list. It's like how 1
grain of sand isn't noticeable, but many grains together start to look
like a beach.

As the Guidelines say, focus on intent. If you're using CSS techniques
purely to improve your users' experience and/or accessibility, you
shouldn't need to worry. One good way to keep it on the up-and-up (if
you're replacing text w/ images) is to make sure the text you're
hiding is being replaced by an image with the exact same text.