I think it has to do with text over it, so your pattern recognition thing in brain gets thrown off because it needs clear edges. I find it unsettling as well.
On the other hand I was toying around with idea of blurred backgrounds about a month ago based on several things I saw people were trying to do with it. It can be extremely pleasant if it's not upsetting outlines. Here's what I quickly proto'd based on what I saw elsewhere in several instances: http://cssdesk.com/VYN67
It's not the text. It's the fact that when the page first appears, there's nothing but the blurred image. Our eyes immediately set to the task of focusing, which can't be accomplished.
The reason I don't believe it's not the text over a blurred image is because our eyes deal with this on a daily basis.
Any time you look at an object (like someone's face) where the background is distant, you're seeing a foreground object on a blurred background. Depending on lighting, visual acuity, and the use of glasses, the DOF of the human eye can be startlingly small (less than a foot), or it can be very large (practically infinity). It's the cognitive portion of our visual processing that makes the difference. Our brains do a great job of filtering out what we're not focused on.
My recommendation would be to ditch the animation on the HTML5 logo, tagline, and buttons. I think if you do that, this becomes a non-issue for the vast majority of people.
I found the 100px radius acceptable, personally. I wonder what the tipping point is. Perhaps it's when it's no longer possible to do feature detection.
On the other hand I was toying around with idea of blurred backgrounds about a month ago based on several things I saw people were trying to do with it. It can be extremely pleasant if it's not upsetting outlines. Here's what I quickly proto'd based on what I saw elsewhere in several instances: http://cssdesk.com/VYN67