Another way to get it out is to take the next larger sized screwdriver, like a #2 and pound it into the wallowed out hole, with a hammer. This will imbed the larger bit into the screw-head and loosen it.
The better option is to use an impact screwdriver, available at most sears places for around $25. It comes with hardened bits. You pound the bit into the screw, then twist the screwdriver it in the direction to loosen it, hit it REALLY HARD once with the hammer. Usually this will do the trick. WD-40 or other penetrants always help.