Now BlogSpot team added a new feature to upload Favicon, you can directly upload Favicon to your BlogSpot blog from your BlogSpot dashboard.If you want to create Favicon for your blog Using Online Tools ,Visit my Previous post.
Steps To Add Favicon to BlogSpot Blogger Easily:
Step 1: Login to BlogSpot dashboard and click on design.
Step 2: Click on Edit infront of Favicon and click on choose file,
Step 3: Browse your Favicon and click on save.
Now your BlogSpot blog is live with new Favicon.
For More Tips Visit: BlogSpot Design Tips and Tricks
Update:Now this Feature enabled in the default Blogger.com also.