Typically, employers just don't care about ideas that are outside their line of business. After all, if I come up with a great social networking site but my employer is a financial software company, stealing my social networking IP will just be a distraction from their business activities. They're worse off for taking ownership of the IP.

Do tell your employer what you're doing and clear it with them. Aside from being the honest thing to do, it also sets you up to get formal legal permission. If they're not willing to do so, you know that immediately and can weigh your options from there, including quitting or giving up the startup.

In some cases, your employer may even give you money, advice, and customers. I once worked for a company whose CEO was the former CTO of Cybersmith (the gaming cafe company that went bust around 1999). She came up with an idea that was useful for Cybersmith's business but was not something Cybersmith was willing to put resources into. Cybersmith became her first (and only, it turned out) customer and gave them significant resources to fund development.

"3) The CEO will sign a document releasing our specific idea from the IP Agreement. Has anyone heard of this happening with success before??"

This happens more often than you think. The most prominent example is Apple Computer - Steve Wozniak was on HP's payroll when it was founded, and needed HP to sign away their rights to the Apple I. One of my cofounders is in the process of getting a similar release from Sony Entertainment, and I'll probably need something similar from my employer (I have verbal permission already).