I did a very quick search and it appears that blogger is tied to your google account which gives you a certain amount of free storage space? I don't really know how to free up any more, but that's the main consensus from the internet.
No idea...But I am loving the roadtrip/vacay posts & waiting for MINE so I hope you get it figured out!!!!!!!!!!!!
You can link pictures from Picasa (I have heard, but have not done). The same thing happened to me, and I ended up starting another blog, and can post pictures from it to my regular blog posts, but I haven't been able to change the banner pic or the ones on the side (my kiddos are looking very outdated). Or, you can pay $5 year for more storage. Good luck!
THIS IS CRAZY!!!!!! WHAT THE HECK?!?!?!?!?!?!?!?!?!?!?