How do I make the background image just a blur of the album art instead of an image pulled from the internet?
As OnlineAppearance mentioned, you need to edit the Theater Mode's .xml file a bit.
Look into that file and you should see something like this:
<!-- Background Gallery --> <element name="#Gallery" type="Gallery" ...
<element type="Block"...
Change it to:<!-- Background Gallery <element name="#Gallery" type="Gallery" ...
<element type="Block"...
-->
