Just when I thought Blogger had worked out all their issues with the new photo uploader, I go to add photos today and get a Server Rejected error. So I went to Google to look for fixes. Someone said if you had Picasa and your album was full with over 1000 photos that you'd get the error message. The fix was to revert back to the older version of Blogger, post one photo and it would start a new Picasa album and self correct. I did, and it did.
Recently my old computer ran out of memory and my tech gave me another old one. Except in the transfer I lost paint shop pro. Ugh. After 2 weeks of pulling my hair out I downloaded Picasa, which is free. And then Picasa populated the program with my photos and I have well over 1000, so that's what created the Blogger glitch (I think).
If you are having the same issue, maybe this fix will work for you as well. Go to your settings page, click on 'old editor' and then add one photo. You can switch back to the new fangled editor after that.