When using the overview effect in both X11 and Wayland it seems to disable blur, not sure how it is going about doing this either disabling the compositor or forcing the windows into a "minimized" state but any window using a background blur (for me Konsole, Dolphin) that blur gets disabled when activating the overview effect, then re-enabled after exiting the overview, and it shows up in a jarring way. Similar to how minimizing/reopening windows shows the blur "pop" into place since it gets disabled on window minimization The "Present Windows" effect, however, does not do this, which looks much less jarring.
I'll add that yes, there is already a background blur with the effect but disabling the blur for open windows still looks very bad since it doesn't become re-enabled until the exiting animation is completely finish.
This bug was reported against an outdated version of KWin. We have made many changes since the. If the issue persists in newer versions can you reopen the bug report updating the version number.
The current behavior (kwin-wayland 4:5.27.7-0xneon+22.04+jammy+release+build41) is that the overview and "present windows" disables all transparency effects: windows become full opaque when the effect is active. There seems to be a transition for that process as it does not seem jarring to me (but I don't remember how it looked before, so YMMV). OTOH, in the desktop grid the windows remain transparent but blur is disabled. I think its the same issue as before, but the effect was fixed in overview (and "present windows" which was, IIRC, rewritten to use the overview effect) but not in desktop grid.