1. Design the icon and save it as png (ico is preferred, but it's harder to upload). The preferred resolution is 16x16, but i saved mine at 22x22 for greater quality, and it seems it works :) (i think 36x36 is the limit)
3. Go to Edit HTML under the Template tab in your blog's dashboard
4. Find the follwowing line (Ctrl+f) : <title><data:blog.pagetitle/></title>
5. Insert this code below it: <link href='Ur pic URL here' rel='shortcut icon' type='image/vnd.microsoft.icon'/> (replace "URL of your icon file" with the link you've copied at step 2)
6. Save the template
You will see the changes when you View Blog. Good luck~ :)