Jonathan, I see what you mean... I really like the puppy in the image. The cut out seems to have him just floating... make a selection of the background (try using select by colour, click on the objects in the background, and holding the shift key down select some more.) you may have to deselect a bit of Simon using that. Try and avoid selecting the floor on which Simon is laying though. Then use filter, blur, lens blur, and have a play with the settings. This seems to give the most natural looking blur (to my eyes at least), as if you'd shot with a wide aperture setting for shallow DOF.
I didn't adjust my Play image in photoshop, I blew out the background at the shooting stage by pointing a flash set to blinding power (it's only got 3 settings) at the wall but from beneath the shot (in effect from behind).