An excellent tutorial was posted by Jun Auza on fixing the Blogger header issue or problem. Follow the link below for the step-by-step instruction:
"Blogger has changed the format of their ‘header widget’ without notice resulting to such problem that I had recently. Before the alteration: Using the Blogger editor, when you upload an image for the header with a size of let’s say 100 x 100px, then place it ‘instead of title and description’, the header image that will appear on your page will have the same size as the uploaded image."
Read more HERE...