Blurring ambient occlusion is wrong! Well you can do with some bilateral stuff (or gaussian filters - which are a lot better, but too slow for real time), but you'll lose micro-details in ambient occlusion, it just won't look okay.
So what's best to do - simply performing true ambient occlusion with enough samples (I think jittered 32 samples is enough for nice low-frequency ambient occlusion), let's assume we can go with half screen size ambient occlusion buffer. So let's do the math - we have to do (at 720p) 230 400 * 32 samples per frame - totalling 7 372 800 local rays/s. And we need at least some decent 30 fps - thats totally 221 184 000 rays/s (221 MRays/s) ... this is not far from impossible.
At ompf.org mpeterson states, that "on dual sandy (3.06ghz) around 290mrays/s with ray length of 0.25 \ scene-diag" (Fairy forest scene) which actually seems enough (note that 0.25 \ scene-diag is quite large radius for AO and you'll most likely use much smaller one). Not mentioning that you can actually run ray tracing on GPU. Also the less radius, the more Mrays/s you will get - so you can get quite nice correct local AO at decent framerate