Pixelmask requires an extra two draws on the surface area to achieve the effect, so I wouldn't recommend it for extremely large things. The Stencil Buffer approach would be much faster, the downside is that it will not give you smooth anti-aliased edges that Pixelmask would. However, depending on your use, it might not matter.
Here's a list of things that pixelmask would be especially useful for:
- Progress/loader bars
- Energy level bars
- Button shimmers/shines
- Custom framing of images (circular cut facebook profile photos, for instance)
- Unique lighting effects (torches, lamplights, etc)
- Custom animated overlays on game characters (power-up shines, etc)
Regarding your shadows, have you tried out the new DropShadowFilter available in 1.3RC?