On my son's latest Baseball Video I have incorporated the ESPN-style sidebars that you see when an SD clip is shown on a HD TV.
Most of this video was shot with my old Sony Digital 8 cam, shooting in 4:3 aspect ratio. The last quarter or so of the video is shot with my new Canon XH-A1s, shooting in 16:9. I obviously didn't want to ruin the glory of full-screen video, so I figured out the blurry sidebar trick.
Firstly, my project was set for 16:9, making sure in Preferences that Use Fit-to-Screen as Default Size in Overlay Track is unchecked. I dropped my 4:3 clips onto the main timeline. You should have black sidebars on either side of the clips.
I then dropped the identical clips onto the overlay track, directly beneath the clips in the main timeline. Now resize those overlay track clips to the same size (aspect ratio) as the clips in the main track. As these are on the overlay they will be the clips that are "seen" in the foreground.
Now back to the main track (this will be the background, but really only the sides are visible). With a clip selected go to the Attribute tab and check Distort Clip. Then right click on the preview window and choose Fit to Screen. For the blurry look I simply add the Average video filter.
You will have to follow this procedure for each clip that you want to add this effect. Of course an alternative to doing each clip separately would be to make a video file of all your clips first, but you have to make sure all your editing is done beforehand.