It's not possible to smooth the edges of a font on an transparent background in GIF files. There's only one color that's transparent. On or off, that's the extent. If you want antialiasing, you will need to use PNG files.
one thing MIGHT work though.....it wouldn't hurt to try
it's still possible to use .gif and make it smoother by choosing transparency as you have it but with matting. Put "matte" option and choose the exact web color # of your backgound. What "matte" does is that it puts a thin colored outline that matches your backgorund so that when you place your font over your colored background that it actually blends with it.
I've removed "0alma"'s post. It was just a copy of the text from here: http://cc.uoregon.edu/cnews/summer2002/fonts.html without any attribution or credit to the original author. Plagiarism is wrong.