My first jQuery plugin - blurStuff()
In the code I only would modify the variable declarations:

var defaults = {blurRadius:2, deblurOnHover:false},
settings = $.extend(defaults, options),
img, blurContainers, clone;


Personal preference, but you can read a discusion about it here.

Answering your questions:


The efect work great. I think the approach is good, don't think
that adding four elements would be a big cost.
You could check if the  has the fixed property to avoid breaking anything. 
By the parameters you have rigth now I shouldn't bother. If you decide
to add the opacity again it would be a good idea to check it. If
greater than 0.x use the default instead.