i have been facing the same problem.. the pics just don't upload onto the blog.. :-(
If you have the photos in Picassa, go to the pic, check the box for pic only/no link, change to the size you want the picture (I always use 800 then resize in Blogger). Copy the link it gives to the picture. Go to the post in Blogger, switch to HTML, then input < img src="PASTE LINK HERE"> (No space between < and img!!). Then switch back to the Compose view. Blogger should have put the pic in for you, and you should be able to resize it and move it around...
I had the same problem too but someone said if you switch to the old blog editor you can add pics it worked for me - after saving my post with the pic I switched back to move my pic where I wanted it. Hope this helps. xx
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