Mapping Center Answer:

There are a couple of ways you might do this.  A simple solution is to use the Euclidean Distance tool to, effectively, create a vignette around your raster based on distance that you can then classify and symbolize using a color ramp.

Another way is to create a polygon of your raster layer using the Polygon to Raster conversion tool and then using that polygon as a basis for creating Multiple Ring Buffers, again using distance away from the polygon to specify the buffer widths.  These buffers can then be symbolized using a single color and then vary the transparancy so it 'fades'.  You might also take a look at the techniques outlined in this 'Fade to White' Mapping Center blog entry to see if they are suitable for what you need.