Yay, I'm glad you like it!
The fix isn't technically complex, but will take a lot of time and patience. Don't expect to achieve it quickly.
Download the PSD file
First, a dodge and burn layer to even out the wrinkles in front a bit.
Then a radial gradient layer. Mask it completely around the child. At this point, the child will seem like it's "floating", exactly as you said.
After that, use a very low opacity black brush on the mask to gently reveal a bit of the blanket texture in front, as I did.
Finally, the noise layer to prevent banding.
If any of the above is unfamiliar to you, I beg you to consider my little Layers & Masks Class. It's very cheap, but will open up worlds of skills to you.