Deleting overlapping polygon features from one of two layers using QGIS?

using qgis 2.0.1. created two overlapping polygons (yellow & green). clip tool creates "difference area" (red polygon). apply difference tool; input vector layer = original polygon layer, difference layer = clip polygon.

results of applying clip polygon with difference tool to each of the original polygons.

hope this helps:)

You can also use "symmetrical difference" (vector > geopprocessing tools) to do what you want in one step (also called XOR, see a description of overlay operations on wikigis for more details)

On the other hand, your topology does not seems very good because you have overlapping polygons. You could clean up a bit your green layer by converting your polygons to lines and back again from lines to polygon (vector > geometries)

By the way, before using the processing tools, it is also recommended to work in the same coordinate system. This could explain why your tools are not working as expected