Is there a reason for BBCode to be the default for the Blog module? It seems strange to break the SilverStripe UI convention of editing with TinyMCE - it's more consistent to enter content the same way across the site.
The first thing I did upon installing the module was to disable BBCode parsing and enable TinyMCE editing, and I think it's likely that's more in line with an end user's expectation.
It seems (per mapes911 above) that the newest version of the blog module allows you to place "BlogEntry::allow_wysiwyg_editing('true');" in your _config.php file. That would be simplest.
I can tell you what I did, but I don't recommend following my process, as I hacked the module to remove the BBCode. I've attached 3 diffs that modify the files needed. I'm planning to upgrade to SilverStripe 2.3 and the new Blog module, which is likely a better way to go.
This has been a very informative thread to read however, despite going through and changing and unchanging a lot of my files, I still can not get my full blog posts to view correctly (without the html code).
I changed the blogentry.ss file in both the /blog folder and in my /themes folder and still nothing.