Yeesh, that hurts my eyes. The concept is cool, but you need to do 2 things in my opinion: Don't blur the border, and make the penguin a more stylized blur. As in take a couple of "ghost" copies of the original and layer them together with the original such that you still have some crispness and clarity of detail in the original where there's no overlap, but you get the feeling of blurriness.
Just my opinion, though.