Insert the following code and why not have a quick glance at it yourself
to see what you can pick up before I go over it in full?
 onClipEvent (enterFrame)
{
 xdist =
Math.round(_root._xmouse
 _parent._x);
 ydist =
Math.round(_root._ymouse
 _parent._y);
 distancefromthis
= Math.round(Math.sqrt((xdist*xdist)
+ (ydist*ydist)));
 _parent._alpha
= (100distancefromthis)+20;
 }
Do you recognize the formula used in fourth line? It's Pythagoras'
theorem! What's that you say? Who's Pythagoras!? You should be ashamed!
Never worry, here's what it is, how it works and how it applies here...
Basically, Pythagoras' theory can be used to calculate the length of a
side of a rightangled triangle given that we already know the two other
sides. Here's a diagram:
[ it has to be a
rightangled triangle ]

Pythagoras To The Rescue! 
OK, so we've got a rightangled
triangle, two known sides (x and y) and an unknown
hypotenuse (z). First of all, Pythagoras' theory is this:
x² + y² = z²
And here's our process of working out z:
130² + 180² = z² therefore...
16900 + 32400 = z² therefore...
z = the squareroot of 49300 which equals 222


Now let's imagine that our circle was at the topleft point of that
triangle and the user's mouse was at the bottomright point of the triangle,
using that calculation and finding out "z" would give us the distance
between the two! So let's figure out each of "x" and "y" individually
then...
First of all, "x" is the difference between the mouse's x value and the
circle's x value. Therefore, we use the line:
 xdist =
Math.round(_root._xmouse
 _parent._x);
Now for the "y" value. I think you can guess that it's the difference
between the mouse's y value and the circle's y value. Therefore, we use the
Actionscript:
 ydist =
Math.round(_root._ymouse
 _parent._y);

Note 
You should note that I have
used the _parent keyword in these lines. _parent
basically makes your code refer to the current object's
"parent" or whichever movieclip the current object is
stored within.
In this case, the code is on the "distancing" movieclip
and this is placed inside the "circle" movieclip (it's
parent). Therefore, _parent in this case refers to the
"circle" movieclip. 

We now have the distance of the x coordinates in the "xdist" variable
and the distance between the y coordinates in the "ydist" variable. Let's
throw these details into Pythagoras' theory in the third line of our code.
The distance between the mouse and the circle (or "z") will be stored in a
variable called "distancefromthis". It will contain the square root of the "xdist"
variable squared plus the "ydist" variable squared. In Actionscript, this
looks like this:
 distancefromthis =
Math.round(Math.sqrt((xdist*xdist)
+ (ydist*ydist)));
Notice that I have used the Math.round() function. This just
rounds our result up or down to make everything a little tidier.
Phew! I hope you're still with methat was a lot to take in so pat yourself
on the back. The final line of code which actually uses all our hardearned
data and affects the circle with it:
 _parent._alpha
= (100distancefromthis)+20;
Again, the use of the keyword _parent means that we're affecting
the circle. Then, we point to the alpha property and set it to full (100)
and then subtract the "distancefromthis" variable that we figured out and,
as an option, I have added 20. This 20 number is something you should play
about with to make things look how you want them. You can even try messing
around with the entirety of this line!