Despite thinking this would be easy, it turned out to be a bit of a pain! So to make your life easier, here are the definitive steps on how to add an amazon affiliate ad to your blogger blog.
1) Log in to amazon associates website (sign up for an account if you don't have one already)
2) Click on the widgets button
3) Chose Recommended product links Widget (you can use any one you want, but this seems to be the best in our opinion)
4) Chose your product line and keywords or subcategory
5) Select the size you need - for our template we chose 200 x 200
6) Copy the html generated into notepad
7) Go to edit and replace & with & amp; (without the space) and replace all
8) copy the new html and then log into Blogger and edit your template (Design > Edit html)
9) Paste the html onto your template - we recommend putting it here: "div id='sidebar-wrapper'>"
Hopefully this will save you a lot of time. Please let us know if it works!