Dunno if you're still here, OP, but I actually created that wallpaper. I was using KLWP to make them at the time but I suggest jumping into GIMP instead.
The basic process is pretty simple for this one. In GIMP, I'd just use circle select on a fixed 1:1 ratio for making the circle. Create a new layer, make the circle as large as you want, crop layer to boundaries, then use the alignment tool to center the layer on your canvas (I do this just for centering the shape). Then re-select the layer with the circle tool. Select, Selection to Path, and then deselect. Delete that centering layer and then go to your paths, right-click the path you've made, Stroke Path. Play around with the stroke width to get a line thickness you like. The paths tool will always give you cleaner shape lines.
Now that you have your shape, position your render accordingly. To get the render to pop out of the top, you can either cut the render in half and paste it to a new layer or cut the shape in half and do the same. If you cut the render, the portion that pops out should go above the shape layer and the portion to go under the shape should, well, go under the shape. Now, to cut the render to not go out of the edges, go to your paths again, right-click the shape path, Path to Selection, and then cut the render. You might need to use one of the selection tools to add to the selection as to not cut the top or sides of the render off.
And that's pretty much it. Blurring the background is as easy as doing Path to Selection, Gaussian Blur (to blur inside the shape) or Path to Selection, Invert Selection, Gaussian Blur (to blur the outside of the shape) on the background layer.
There's other minor aesthetic things you can do. I typically like to reduce the contrast and saturation of the blurred background. In the one you're using here, I accidentally had some weird color setting on in KLWP that changed the colors of the background outside of the shape. Happy little accidents.
I hope that helps.
