Download from my plugin set
Every popular image editor has a smudge tool, and now Paint.NET can be popular, too!
Effects > Tools > Smudge
Want to make a cute monster like this one? Check out this tutorial by Marken.
Even if you don't find it cute, the tutorial is still a good introduction to smudging.
Here's how to use brushes to get different styles of smudging: http://forums.getpaint.net/index.php?/topic/29947-advanced-smudging/