Well, that's essentially what I do (I asked because I have a Sid's shot that has been giving me difficulties when I try to process it), but for some reason I have never tried the lasso tool! That is a great idea. Just out of curiosity, why don't you use layer masks as opposed to the eraser? I know they pretty much work the same functionally, but it seems that type of 'destructive' editing is a big 'no-no' among the PS elite.
Oh, and I'm glad to see I'm not the only one who can never accomplish anything with Photoshop's built in merge to HDR. With CS3, I almost always just get an overly flat image that has roughly the same dynamic range (maybe a bit more) than the 0 image!