Yeah, I don't see the background as particularly distracting. I know you're already aware of it, but the out of focus face of the squirrel is what's really wrong with this photo, and you're probably not going to be able to fix that very well in Photoshop. The expression is cute, but honestly not anything I haven't seen with a squirrel a hundred times before. I guarantee that with a little patience you'll be able to find a squirrel in almost the exact same pose if you go out looking for the shot again. And Jim's spot on with trying to get a lower angle to improve your shot. Also, if you're not already, you'll definitely want to use a single focus point right on the squirrel's eye(s).