The basic steps are under Sarahs Watercolor Tutorial.
Everyone is different and i might occassionally slip in another filter of some kind. This one had a layer of Photobrush's Oscars finest Watercolor. Other than that just the smart blur normal and median. Much of the effect comes from your choice of brush and opacity and layers of it when painting it back in.
Original- I only work from my own photos
http://www.pbase.com/image/118595.jpg