In this example the mask was created as an ellipse. Choose the Preset Shapes tool, with the type set to ellipse and the style to filled. Next open the layers palette and left click on the background layer. Left click on the little trash can and trash the background layer. What you should have is an ellipse with a hard edge.
Lets blur that edge.
At this point you should a two layer copy of your image with a white background and the image on a separate layer. As well as an image with a blurred black ellipse. Take a close look at the top of the example image. See how you can tell where the top edge is, but you can't for the bottom edge. This image should have two layers, a background layer, which is white, and a top layer which contains the image.