Another Borders question

Okay so I finally figured out how to do round border thanks to this tutorial the problem is when I hit delete it gives me the round border that I want but it fades the rest of the picture and I can't seem to get rid of the dashed lines. So my question is how do I prevent it from fading my picture and get rid of the dashed lines?

Thanks in advance.
(I use Adobe Photoshop 7)