I've spent the last week testing out various blogging apps on my iPhone. The one I've settled on is BlogPress.
I tried the free version "BlogPress Lite" which ticked all the boxes. It allows you to post blogs which contain photos direct from your iPhone, while also storing them to your Picasa account. I did need to set up a Picasa account, but because I was already a google user this was very easy. The free version will only work with Blogger & Blogspot blogs, but the paid one works with far more.
The feature that made me upgrade to the paid version is that it automatically posts a Twitter Tweet linking to my blog post. At last I've found a use for Twitter 8-)
Posted from my iPhone