Um, that's actually a bit worse than the first image. If you gave me a choice between the two, I'd take the first, no offense.
As for how I'd do this, I'd probably duplicate the layer that has the original layer, add a gaussian or motion blur, set it to whatever intensity you want it at, then apply a mask to that layer. Invert that mask, and paint with white to reveal the blur, black to hide whatever mistakes you made in your painting, and you should be ok. You can also increase/decrease the opacity of the layer to help it look more natural.