Until I have time to do a proper post to rewrite this, please refer to the following posts (will appreciate feedback which may help me rewrite this FAQ post):
Customizing your blog with favicon
Free favicon generator and ico host
Favicon for your blog
Fix for mission favicon
Blogger for Dummies: favicon, generator and host
Easy favicon ready to use
This FAQ is under construction. As a temporary measure, refer to Blogger FAQ which contains a listing of post under various topic, or use this online spreadsheet - Blogger related posts spreadsheet. Use ctrl+F to search for topics.