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.
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