The pictures from Blogger are stored in Picasa (http://photos.google.com). You will need to create a new album to store the photos since the current album (called Dropbox) is already full (please do not remove any picture there since the pictures are used by your blog).
Important: Please do not remove the Dropbox album.
To solve this, open http://photos.google.com and add an album named "BlogTouch for Blogger" (there is a button called "Create" on the top bar).
I did as suggested and created the new album. The problem is solved.
Thank you everyone who made suggestions as to how to deal with my photo limit having been reached.