Adobe Premiere Pro

You can't really do it without the bluriness. What you're talking about is an artificial zoom. These just are not done well. There are some third party applications that can help, but they are not free.

As for doing the zoom and moving the image around to focus on the one person (for better composition), check out the Adobe documentation on it,

http://help.adobe.com/en_US/PremierePro/4.0/WS3193540A-ED2F-4ba3-B7E2-A2F16164A47F.html

Try here and see if this is what you are looking for...

http://help.adobe.com/en_US/PremierePro/4.0/WSf52ca809ac8f6c7135876f961243120b72d-8000.html

I think you need to convert that file first.

You can use picture in picture to create this effect - see this tutorial

http://www.wonderhowto.com/how-to-create-picture-picture-split-screens-premiere-81619/

To export as an AVI file, choose File > Export > Movie.

This creates a large file but is the best quality. Use this option for mastering purposes or if you want to be able to edit the video later. For maximum quality, export as an uncompressed AVI (warning: very large files will result!)

DVD

For output to DVD, choose File > Export > Export to Encore. This sends the selection to the separate Encore application for DVD authoring.