Choose an image hosting service
I use my account on Photobucket to store all images for my blogger templates. That is because Photobucket is easy to use and we can organize all images easily with it.
As you know, all most of images hosting services restrict the bandwidth! What does it mean when they said that “You have 10GB monthly bandwidth” ? Supposed that you stored an image with file size is 1MB and everyday your image is viewed 1024 times. That means you used 1MB x 1024 = 1GB/day and after 10 days your image will be unaccessible because your bandwidth had exceeded it’s limit! You can not view your image the next 20 days!
If you are using my Blogger Template, that means you are using my bandwidth too. When the bandwidth is exceeded, this will affect to your blog look. All images on your template will be gone, and replaced by the background color. So it is better when we keep images ourself 
There are lots of images hosting services you can choose to store your images, of course, for FREE. In addition to, some of theme also offer another services such as photo-sharing, video-sharing, image editor online, …
Here are some images hosting services for your blog I recommended.
1. Photobucket
- Fast upload speed
- Resize options when upload
- 100GB monthly bandwidth
2. GooglePages
- Ajax upload (I love this 
)
- UNKNOWN monthly bandwidth
3. Imageshack
- Fast upload speed
- No need to register
- Resize options when upload
- 300MB hourly bandwidth
Hope this help.
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I am not a very active forum member i order to require image hosting , but according to my experience http://xtupload.com/ is one of the most advanced one , moreover its free .
Its bandwidth is only 10000MiB/month, not enough for me
I have been a photobucket fan for a long time. I use them to host small banners for various sites that will be linked to and images for use on ebay (ebay charges you to add images to your listings but they also let you control the HTML of your ad. So, you upload the images to photobucket then insert them into your ad through HTML and it saves you money … good tip for those who sell a lot)
If you are on WordPress, you dont have to bother about image hosting these days. Most hosting companies give unlimited bandwidth.
But blogspot bloggers really need image hosting, especially when are having lots of images. The blogger quota of 1 GB will be exhausted soon.
There is another way to host the theme images.
Start writing a new post (Create new post) and upload the theme images to the post. Then preview the post. Right click on each image and copy the link. Note which links are for which images. Save the post as draft.
Now edit your theme replacing all the image file links with the new links that you have copied down.
That helps..?
I might try googlepages coz Photobucket has some limitations.
Can you tellme… By using external images in our post how to show thumbnail on site?
i like photobucket for images and banners it saves me some bandwidth and keeps everything in order.