I've had this problem with Blogger many times when I can't use www.mydomain.com as the custom domain. It returns an "Another blog is already hosted at this address" error. Here's an easy fix that worked for me:
1. Go back to using the *.blogspot.com address
2. Login to Google Apps (or sign up if you haven't). If you don't know Google Apps, this is Google's free service so you can use your domain with their services for free (gmail, docs, sites, etc)
3. On the Dashboard, click "Sites" (on Service Settings).
4. Click the "Web address mapping" tab
5. Delete the "www.mydomain.com" entry. This is the DNS setting that conflicts with blogger when you type www.mydomain.com as your custom domain.
6. Go back to blogger and set www.mydomain.com as your custom domain. It should work this time!
The next thing to do is redirect the bare domain (http://mydomain.com) to www.mydomain.com. This is covered on this blog post from Consuming Experience:
Blogger: how to use a www custom domain for your blog
That's it! have fun!