A recipe for properly positioned custom header image with all corners rounded:
- Using your favorite graphics program, set the black (#000) on this mask to 'transparent' and overlay it onto your source image.
- Position the mask so that the image you want on your blog shows in the "window."
- Save the precise 760*200 mask with the 'framed' image as a graphics file (jpg works, I didn't try gif or png).
- Upload and do NOT crop (the default selection image area is the whole thing as uploaded and that's what you want, so just hit the crop image button without moving any of the dotted lines.)
See example here.