It seems to work ok but then when you view your blog it looks horribly pixelated.
(basically it's shrinking the images down to 400 pixels wide and then stretching them and STRETCHING EQUALS HORRID PIXELATION!)
So, if you happen to be experiencing some troubles with this too... why not head on over to the Google/Blogger Help Forum and let them know it's broken for you too?
Link to the site is here.
Hopefully it won't be a problem for much longer.
23/1/11 - UPDATE: I suck for not letting you know this sooner, but if the crappy pixelation is driving you batty and you really want to have a nice normal header then you can get around it.
Here's what you have to do:
1) Upload your header image to Photobucket or another free web image host.
2) Grab the direct image URL ie: http;//www.YOURIMAGEURL.jpg
3) Go to Blogger and go to the header area (it's under the DESIGN > PAGE ELEMENTS area). A pop up window will open, see below. Instead of "browsing" for your image, put the URL in the "From the Web" line.
4) Click save
Your header will not be pixelated as the image is not being stored on Picasa (ie: Blogger image host).
27/1 UPDATE: This now seems to be resolved! Woo!
