I love the widgets that the new Blogger hosted on Blogspot provides, but I have to say that there is no replacement for the search engine benefits and ability to create a template for your blog that matches your site seamlessly. I have just made a new blog template for my Web-World Watch blog. Click the post title and you can see it.
Blogspot hosting does not seriously affect your search engine placement, but Blogspot blogs do not show under your main domain in the search engine results either. There are good reasons to use a Blogspot blog and good reasons to use the old Blogger with custom FTP blogging.
My personal preference is custom FTP blogging on the old blogger. Eventually Blogger will work out a way I am sure to get the best of both worlds, but until then you just have to choose. – cool widgets and flexibility or better search engine placement with your domain and no widgets.