I have no idea what's going on with Blogger's development team. But apparently, there seems to be some huge bugs being left here and there. The latest one comes in the form of header images. When you upload a header image to Blogger (or Picasa Web Album), it will either be small or blurred. You can fix this by hosting your header image elsewhere. If you know how to do this, go do that, and stop wasting your time here. Because that is exactly what I'm going to show in this post. Let's cut to the chase and see how to fix this shall we?
UPDATE: It seems like this problem has been resolved now. But you can always keep your header image hosted elsewhere, just to play safe.