Very simple... in your template (Design -> Edit HTML), add the following 2 lines of code just before the closing </head> tag:
<link href='http://path-to-your-icon/favicon.ico' rel='shortcut icon' type='image/x-icon'/>
<link href='http://path-to-your-icon/favicon.ico' rel='icon' type='image/x-icon'/>
Replace path-to-your-icon with the path to your icon ;) For example, mine is at http://www.daveworld.net/favicon.ico.
Important to note:
1. put this just before the </head> tag so it counteracts the auto-generated favicon reference made by Blogger.
2. be sure to include the type='image/x-icon' part, or else this won't work in chrome.
3. Always back up your template first before making changes this way!
And there's that. Thoughts, comments, questions, feedback, criticisms... all welcome here, post below :)