Photo Blur (free) is a clever app that uses your existing pictures to create nice-looking wallpaper on your iOS device.
The app is simple to use. Select a photo from your library, or take a picture directly from the app using the iPhone's camera. You'll see a slider that lets you determine the amount of blur, and another one to shift the colors. You can also select a pattern to overlay your image. One pattern is provided, and more require an in-app purchase.
The results depend on the photo you seed the app with. I found some of my landscape photos looked great after processing with Photo Blur. You also get the satisfaction of knowing the wallpaper is your creation, not something taken from the web.