Chris' Patented Blurring In 3DGS :-

camera.transparent = 1;
camera.alpha = 30;
Reducing the alpha transparency seems to hav an interesting effect in that it blurrs the level around you. This isnt a perfect solution, some issues with lighting but i guarantee its the best solution without having to write a DLL.
Hope that helps, oh and remember to give me humongous credits in your game

Chris