I duplicated the image and applied heavy Gaussian blur to eliminate the creases in the paper backdrop.
Covered the problem areas using a layer mask
Made a new layer and filled with the off-white color of the blanket to created a vignette. I changed the layer blending mode to Lighten.

Forum discussion: http://forums.dpreview.com/forums/read.asp?forum=1006&message=28901222
original image by Ray: