A graphics blending feature for a terminal (200) such as a home communication terminal (HCT) allows an overlay image (301) to be selectively blended with a background image (302) through the use of a chroma key function and one or more alpha control bits (206-208). The chroma key function is used to determine whether the overlay will be completely transparent or not, and the one or more alpha control bits are used to look up a larger alpha value used to blend the overlay and background images. By using small number of alpha control bits to retrieve a larger value for blending, memory requirements per pixel are reduced. The chroma key function may be implemented by comparing each overlay pixel value to a chroma value and, responsive to a match, making the overlay pixel transparent (i.e., no blending occurs). A dithering function is included in various embodiments to smooth out the resulting image.