Create a page, call it blog.

Create a page template and fetch posts from the custom type.

Attach the template to the page.

Save.

Example Page Template

You can use any parameters in the query line that you would with query posts.

<?php
/*
Template Name: Blog template
*/
get_header(); 

$blog_query = new WP_Query;
$blog_query->query( 'post_type=mycustomtype' ); // <-- Your args on this line
?>

<div id="content">

<?php if( $blog_query->have_posts() ) : ?>

    <?php while( $blog_query->have_posts() ) : $blog_query->the_post(); ?>

    <div class="post">
        <h2 id="post-<?php the_ID(); ?>"><?php the_title();?></h2>
        <?php the_content(); ?>
    </div>

    <?php endwhile; ?>

<?php endif; ?>

<?php wp_reset_query(); ?>

</div>

<?php 
get_footer();