We've just pushed a version of Blogger that includes a new, feature-rich editor. You can find out more about it by checking out this knowledge base article.
If you are using Firefox/Mozilla and don't see the the new editor, refresh your browser on the compose post view. Also, in Firefox/Mozilla you may need to tell the built-in pop-up blocker to unblock blogger.com if you are unable to load the spellcheck or upload file dialogs.
Update: There was a bug in the initial release that would crash the latest version of Firefox when switching between compose modes. This bug has been fixed and we are in the process of pushing out the new code.
We are still looking at at the issue whereby Firefox will successfully publish, but never advance the progress indicator.