You're on the right track.
I basically had three layers:
Layer 3: The soldier with masks (see below).
Layer 2: The soldier with a full displacement mask applied.
Layer 1: The background image.
Layers 2 and 3 were basically identical, except that layer2 had a displacement map. However, as Layer 3 was over the top, the soldier appeared to be completely normal.
The 'spread' of the displacement was achieved by gradually masking out layer 3 (the normal soldier), to reveal layer 2 (the displacement soldier) below.
Here's a screenshot of it being worked on:
Note: The 4th layer in that screenshot is a continuation of layer 3, separated purely for convenience reasons.