You see this part?

CODE
<div id="header">

<h1 id="blog-title">
<ItemPage><a href="<$BlogURL$>"></ItemPage>
<$BlogTitle$>
<ItemPage></a></ItemPage>
</h1>
<p id="description"><$BlogDescription$></p>

</div>

Replace this whole section by the following,
CODE
<div id="header">

<h1 id="blog-title">
<ItemPage><a href="<$BlogURL$>"></ItemPage>
<img src="http://photos1.blogger.com/blogger/5948/1441/1600/HSA-header.jpg" alt="<$BlogTitle$>" title="<$BlogDescription$>" />
<ItemPage></a></ItemPage>
</h1>

</div>