I'm sure Blender can do it, I think I have see it done before. But chances are that it will be easier to do in After Effects and will probably look better there. Don't quote me on that though, the last After Effects I had my hands on was version 5.
As for how you would do it in Blender I am not sure, however, there is a fire tutorial on YouTube that might help. It has a heat distortion part that you might find useful. Although, I think it uses particles to do it, so it might not be what you are looking for: http://www.youtube.com/watch?v=zk6DZKD2xzw&feature=PlayList&p=1854D3D973B577E5&index=39