Just did it myself . . . Go to layout (if your not using the classic template), click on add a gadget and select AdSense. You can also check here for more detailed instructions.
Sure, but I'll need to know exactly what you need help with. Keep in mind I'm using the new layout - not the legacy one.
I think you can do it by convert the code first, just get the adsense code and convert it with http://www.eblogtemplates.com/blogger-ad-code-converter/ If it doesn't work, perhaps you need to work with the layout of your blog.
I'm sorry, somehow I entirely missed the point of the OP. On the Blog Posts element in Layout, click Edit, click the checkbox for Show Ads Between Posts. You can then configure your ad placement and colors. Is that <hesitant here since I was an idiot> what you wanted to know?
Try to read this post: tips-for-new-bloggers.blogspot.com/2007/05/adsense-code-in-blogger-post-body.html This contains a step-by-step on how you can add adsense code on the post body. I have been also using this for most of my blogs.