Since Màili's post on this has gone into the depths of cyberspace, I'm going to try to recreate it here. Or at least how I go about it.
First I use Picasa/BloggerBot to upload my pictures in the size I want (250 for my sidebar, would be less for others). You can also use Photobucket or another way to upload your pics onto the web.
Step 1: Using Bloggerbot, upload the image to your blog.
Step 2: In the Blogger page, open up the post you just made and save it as a draft. Now it's not going to show up on your blog as a post.
Step 3: Look for the link that's surrounded by these tags: <(a href:)> and <(/a)>
(minus the parantheses, of course)
It'll probably look something like this: <(a href='http://photos1.blogger.com/hello/198/3656/640/TilThereWasU.jpg')><(img border='0' class='phostImg' src='http://photos1.blogger.com/hello/198/3656/250/TilThereWasU.jpg')><(/a)>
Or it does on mine. You can also use Photobucket and cut and paste the Tag link that they give you. Just make sure that the pic is the right size. I like to use BloggerBot because it automatically resizes the images.
So you cut and paste the link into your sidebar under the appropriate header.
I'm using a list format on mine since I'm partial to Candy's kitty heads, so mine looks like this:
<(li)><(a href='http://photos1.blogger.com/hello/198/3656/640/VisionMurder.jpg')><(img border='0' class='phostImg' src='http://photos1.blogger.com/hello/198/3656/250/VisionMurder.jpg')><(/a)><(/li)>
Only minus all the damn parantheses since Blogger didn't like it otherwise.
Just email me if I don't make sense. I still don't know a lot of html, just enough to do most of the things I need to on here.
Well, I think this is how I do it. Anyone, feel free to correct me if I've screwed up.