I’ve been looking for a plugin that would offer exactly this option–subscription to replies only, not to all comments. So far, Intense Debate is the only one I’ve found, and it’s as you say, a dropdown that gives the commenter three subscribing options: Subscribe to a) none b) replies c) all comments. There’s nothing confusing about it. (But I find Intense Debate problematic in other areas.)
As a commenter, sometimes I’m only interested in replies to my own comments. I don’t want my email box inundated with stuff I don’t care to see.
On my own blog, I always respond to comments, and I tell my readers this when I encourage them to comment. A subscription to replies option would enable them to see my response to them without their having to come back to the website, find the post again, and scroll down. I’m always interested in making things easier for readers, and for encouraging them to comment.
Perhaps a second comment might cause some confusion, but 2nd comments are the exception, not the rule, and I think the trade off would be well worth it.
I hope you re-consider implementing this option. I’d gladly pay for it.