Did yet another test. This time all I did was put the word "Test4" in the Technorati labels area. Hit publish, this time it said Publishing was a success!!
The test post still hasn't shown up on blogger though (now 5 mins later) but that may just be due to a slow update process.

Note, even though it says it publishes OK, there's still that "no labels" error in the x-term window.

My question now is: was I just "lucky" this time, and do I need to put some random word in the Technorati labels area to publish a post?

Now about 15 mins later: post still hasn't shown up on the blog.