Upload your photo/header to Photobucket. If you don't have an account, set up one it's totally free. You need this to obtain a direct link (an html address) for your photo. Click on your Image and then click on "see more" under "share this image." Next, click on the "Get Link Code" tab and copy paste the "Direct link for layout pages" code. Now you might think you can do this through sites such as flickr, etc. But it doesn't seem to work. Photobucket is the answer.
Go back to blogger, and when uploading your header, paste the direct link in the "from the web" box, instead of uploading "from my computer". Wait for the image thumbnail to load, hit Save, and your banner will no longer look like it has five day stubble.
This blog post took care of #27 on my Ninja List