Here are the steps:
- Create a new blog post
- Upload your photo using the insert image button than add selected
- Right click the photo in the compose mode of your blog post and copy image URL
- Go to your blogger settings, select the header gadget and paste your link in the header tab, under the area that says: From the web. Paste an image URL below.
Note: You do not have to submit the blog post of your image for this to work but can actually save it as a draft. This trick actually uploads all photos to your picasa account, which is automatically obtained upon the creation of a Google account.