I know the blog module supports RSS, but in my estimation, most users aren't RSS-aware yet. I'm wondering if there would be a way do e-mail notifications, sort of the way MySpace does, when new blogs are published. It would allow users to "subscribe" to the blog by submitting their e-mail address.

I know it will probably require some custom coding, but any idea where to start? Maybe this is another widget that could be added to the blog module.

This is not so difficult, I have done this a few times...
However, if you want to make it yrself really easy, you can just use a feedburner rss address and use their email subscription form

http://www.feedburner.com/fb/a/publishers/fbemail