It was the England midfielder's fifth goal in 11 games and gives Villa a slight advantage going into the home leg next Wednesday.
After the 1-0 victory O'Neill said: "It was a great goal by a great player.
"He is showing splendid form. He has settled in so comfortably in central midfield. It is as if he has been there all his career.
"Sometimes it is very difficult if you are trying to make goals from wide. But he has that licence now he is inside and James is really enjoying himself.
"Great midfield players are able to carry the ball distances and are able to finish it off. That's what James did.
"I think he felt himself there was goals in his game and he was capable of doing that.
"It was great interplay with Stewart Downing. Downing still had a lot to do before producing a great cross. James follows it on the ball and puts it in the net.
"It was a big goal for us at the time and we proceeded to play really well after that."
O'Neill was angered that referee Mark Clattenburg chose to book Gabriel Agbonlahor for simulation instead of awarding a penalty following a challenge by Chris Samba.
The Villa boss also thought a spot kick should have been awarded following Pascal Chimbonda's handball.
O'Neill said: "The referee has chosen to book Gabby for diving. To accuse him of seeking an advantage, there no chance of that.
"On top of that a couple of weeks ago at Arsenal, Ashley Young ended up in an ambulance after the referee said he dived. That was ridiculous, crazy.
"Then the referee gives a free kick when one of their players (Chimbonda) blatantly handled the ball."
O'Neill added: "Considering we were away from home I thought we were splendid. We created a lot of chances but were unable to put them way.
"I was delighted with the performance. It was very pleasing indeed. We adapted well to the conditions."
Blackburn manager Sam Allardyce was left cursing his luck as Nikola Kalinic was twice denied by the post.
He said: "I think overall we deserved at least a draw as we did enough in the second half.
"But it is our Achilles heel, this time it is millimetres of woodwork that have cost us a goal.
"We don't know why it is not going our way. But hopefully it will happen in the second leg. You need a bit of good fortune to get all the way to Wembley.
"It will be a big ask for the players next week but we have to make sure we give it our best shot. Getting the first goal will help."
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