I would have loved to read a post about this, so decided to do one myself.
To have the space to have large photos on your blog you will have to make sure you have stretched your template, I'm also not sure which templates will work, I use the simple templates with one side column and both the sizes I'm going to show you work for me.
After you have written your post add you photos, next go to Edit HTLM it will look something like the text below, I have make the text you will looking for below bold, you will be looking for Width, Height and S640
imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="284" src="http://1.bp.blogspot.com/-bwy62L35rvw/TUdDw5AdY7I/AAAAAAAAA3g/JH0tHVn0iVo/s640/Recently+Updated26.jpg" width="640" />
Now you need to delete the height="284"
Then delete the Width="640"
The s640 is the number you have to change, the two numbers I have found to work are s720 and s800.
Note-when you are looking to change the s640 yours may be a different number, I made my photos X-Large before editing the HTML therefor getting the s640.
standard S640 blogger X-Large option
If this post helped you we would really LOVE a vote, thanks guys.