In the alpha you can do it with the DOF setting in the camera.
Here's a DOF calculator you could use for figuring out the focal length, object distance and f-stop you'd need to use in TG2:
http://www.dofmaster.com/dofjs.htmlI'd use the film format settings because you can lookup in a wiki which aspect ratio you'd need.
You can also do it indirectly using distance shaders for surface shaders and disabling shadows/GI and use the b&w output as a mask in Photoshop.
Here's how:
www.nwdanet.com/terragen-tutorials/9-dof-effect.html(at the moment the link may be unrechable, because there's something wrong with the search engine friendly links it seems)
Basically you'd need to create a distance shader as the final surface shader.
Change the default distance settings 10000 for far distance to 500 and near distance from 0 to 1000.
This creates pure white up to 500 away from camera which fades to black in 500m, resulting in pure black at 1000m away from camera.
I guess you're pretty familiar with this.
Disable "render shadows", disable GI (enviro + settings to 0 in renderer) and set sun elevation to 90.
Render the image with the same quality and AA settings and such as you'll use for final render.
Use the output of this mask as a mask for a blurred layer of your final render.
Cheers,
Martin