Actually, there is nothing you can do with Volatileimage to blur images. The reason being that alpha blending is not accelerated actually.
If it was, yes. By blitting multiple transparent images at different offsets, you could have realtime blur. ( while not subpixel quality )
If you can afford to use LWJGL, you could render multiple transparent polygons into a texcture, and retrieve it. that would do the trick.