Original photo
Post editing via AfterFocus
AfterFocus – FREE - Google Play Store link
AfterFocus is a new app I've found that allows you to create DSLR-style background blurred photos by simply selecting focus area. It's really simple and effective, as you can see from the basic example above. The program also gives you the option to select how much blur is applied, what type of blur (lens or motion blur), and even adjust aperture. All applied to pictures you've already taken.
The one downside at the moment is you can only save images to a 800 x 600 resolution, but developers are planning to release a Pro version which I assume will increase that limit.
I can't call this a recommendation since I only just downloaded it, but it's free and worth a look if you like the blurred effect on your camera phone photos.