I just installed Drivel, a blogging client, so I'm trying it out now. It looks like you can format, although the content pane shows the HTML tags rather than a pretty WYSIWYG field. It's arguably better that way, of course -- different blog APIs can support a different subset of all formatting tags, so allowing (forcing) people to see the tags means you never post something unsupported. In theory, anyway.

Of course, you never know exactly how things are going to look until you post it. So I better do it now!

(And of course, it worked. Still a bit confused as to exactly what the Blog API in Drupal is implementing, but I seem to be able to post from Drivel by selecting either "Blogger 1.0" or "Metaweblog". Either one works, and I can see and edit past entries just by selecting them. So that should do me nicely!)