The smudge tool seems to be a good way to get a torn paper look.  Unfortunately, it's a very manual process.  I might be willing to use the smudge tool with a light pen, but I prefer an automated method since I only have a mouse.  These steps (which produced the above image) seem to be a reasonable, automated alternative:

http://s76.photobucket.com/albums/j37/Roosterdog/