The first way also allows you to add easily more lights. But to blur it on that way isn´t a good idea since it will cause an halo effect around objects.
For blurring, I can recommend you this paper: http://developer.download.nvidia.com/whitepapers/2007/SDK10/VarianceShadowMapping.pdf
You can have a stronger blur through bluring the lights depthmap. The code can be very easily added to the standart shadowmapping code.