for basic blending, look at the bottom of the layers window and look for a box with a circle in it - should be 3rd icon from the left
grab the eraser brush and choose one with soft edges and of a fairly large size, change the opacity down to let's say 30% and start erasing away - clicking more times the nearer you get to the edge. an alternative is to select the outline of the object using polygon lasso tool / lasso tool or even pen tool then while it is selected, go to select --> refine edge and play around with the settings there
thanks alot! it is not finished, the crappy writing is a rush job from myself - it was done by a hired gun, but is not finished, once it is i will link through to his site coz he defo deserves props for it and i dont want people to think the S**TTY text was his idea - IT WAS ME I CONFESS!!
i also have another version showing fire. - The guy who did these is AMAZING!! conceptual art seems to be his middle name