It's really easy & not as hard as people (including me) had thought. Just that maybe to host a file takes a little bit of effort & googling =)
BTW, just in case some of you who didn't know, favicon is the little picture that you can see usually on the LEFT the URL on the address bar.ie: for blogspot, it's the orange-colored "B".
1. Upload any pictures to any favicon generator websites (the less complex the picture is, the better because it's only 16 x 16 pixels :p).
I used this website: Favicon Generator since it has a nice little trick of animating the favicon!~
2. Upload the custom favicon that you created in a website, i found that there's only a few that supported .ico files. I used this .. well, there are others, but i'm too lazy to try others :p (don't forget to copy the direct link or URL of the file)
3. Use this general code:
<link href='' rel='shortcut icon'/>
<link href='' rel='shortcut icon' type='image/vnd.microsoft.icon'/>
<link href='' rel='icon'/>
<link href='' rel='icon' type='image/vnd.microsoft.icon'/>
Replace the "image url" above with the url obtained from Step (2)..
4. I'm assuming you already know where to go to edit the HTML of your Blogger (if not, it's under Design Tab *hint*)
Hit "Ctrl + F" and search for </body>
Then just copy & paste the "editted" code in step 3 to a line ABOVE the </body>
Finally, save & see your blog...
Depending on your browser, it may take a while to see, but mine works instantaneously :)