One of the common misconceptions is that you need a large sensor to blur the background, and the 2x crop factor of the Four Thirds and Micro Four Thirds cameras makes it harder to blur the background.
It is true that the 2x crop sensor means depth of field for the same subject magnification will be deeper for the same aperture, thus the depth of field at the same subject magnification using a 25mm f/1.4 lens will be similar to using a 50mm f/2.8 lens on a 35mm full frame camera.
HOWEVER, the mathematics of background blurring is DIFFERENT to the mathematics of depth of field.
Let’s have a look at this visually.
I have set up a little Christmas themed scene and aimed to keep the subject the same size in each image (the large one is ~8″ tall, while the middle one on which focus is set is ~5″ tall) and see what happens to the blurring of the background Christmas tree ornaments.
The Panasonic GH-1 makes this a little easier as you can use a native 3:2 image aspect ratio, the same as on my Canon 1D Mark III which has a larger sensor (1.3x crop factor compared with 2x for the GH-1).
Let’s have a look at what the Canon 1D Mark III can do with an Olympus OM 35mm f/2.8 lens at f/2.8 giving an effective focal length of 46mm and similar DOF to 46mm f/3.6 on a 35mm camera:
Now for the same effective focal length on a Panasonic GH-1, firstly, an Olympus OM 24mm f/2.8 lens at f/2.8:
Not bad, the background blurring is almost as good as in the Canon image (note also the different colour rendering even though using AWB and default picture modes).
But let’s see what we can achieve on the GH-1 with a Leica-D 25mm f/1.4 lens which in DOF terms should be similar to a 50mm f/2.8 lens on a 35mm full frame camera:
Wow, beautifully smooth bokeh, and much smoother than one would expect from the DOF equivalences alone.
And for comparison, the GH-1 with OM 35mm lens at f/2.8 (equiv. to 70mm focal length in 35mm film terms), with camera moved further away to maintain same subject magnification:
Other than the change in perspective (ie. less background visible) compared with the Canon image at the top of this post, the background blurring is very similar.
This is why so many people are loving the Panasonic 20mm f/1.7 lens – it is sharp, very compact, much cheaper than the Leica 25mm, perfect for social events and candid photography, gives a fast aperture for low light work and to top it off, allows nice background blurring at f/1.7 – better than a Canon 24-105mm f/4L lens and similar to, if not better than the Canon 24-70mm f/2.8L lens and the f/1.7 aperture nullifies any high ISO advantage of the larger format cameras when they are using f/2.8 or f/4 lenses.
Of course, Canon 1D users can resort to 35mm f/1.4 lenses, and Canon / Nikon full frame users can resort to a 50mm f/1.2 or f/1.4 lens to give even more background blurring at this effective focal length, but the result is a much bigger, heavier, more intimidating, less discrete and more expensive system.