I'm also having troubles with the plugin,
I'm trying to create an black outline around a coastline, and have created a new layer with with only the water. The rest was all deleted and made transparent (like you have said for it to work).
I then used the magic wand tool to select the water, and used your object outline tool to try and create the outline.
Yet it still hasn't worked! When I select with the magic wand it "draws" a black outline around my coastline, but then of course it dissipates when it is deselected. That black outline is all I'm looking for. Doing a search hasn't helped me either for figuring out how to outline an irregular selection.
Please Help!