I’ve been playing around a lot in photoshop lately. For this one I tried using the Orton Effect, via an action, which creates a bit of a dreamy feel. It was actually quite strong when I applied the effect so I reduced the opacity on the layer containing the effect which was directly top of the original…well, the modified original lol. Naturally I did some other things to the image but the slight blurry look came from the Orton Effect.
I wish I could remember where I downloaded the particular action but they are easily obtained by googling.