Two apps to check out.
Big Lens is currently free and offers a quick way to do depth of field effects as well as other filters. Great app.
Laminar Pro. Got this at the weekend and is best described as a mix between Photogene & Photoshop Touch. Potential to be the single best editing app on IOS although currently has a few issues with crashing and interface inconsistencies. Probably the closest to a desktop Photoshop clone. Definitely one to watch. Laminar Express is the free iPhone version which will give you a taster of what it can do, you just need to dig around in the interface. Offers great layer & mask support.