Although all pictures on your Blogger blog are stored on Picasa web album, there was no direct way of embedding existing pictures on Picasa to your blog. The only way to do it is get the image URL from your Picasa album manually, or re-upload the images.
Last week, Picasa integration was enabled for Blogger in Draft which enabled Blogger users to embed pictures from Picasa web album to their blog. Following this, a new plug-in for Windows Live Writer has been released that allows you to do that from Live Writer.
Another good thing about the plug-in is that you can add Picasa albums to blogs on other platform as well, like Wordpress.