I might know what's going on... From the button URL above I grabbed your site name and tried to download the button file. But I ended up on a page requiring a password to login.
That's going to be a problem. Picasa needs to be able to access the page to download the button as a public - no login required - page. Because your site is configured to require a login, Picasa can't access the button file.
You could try manually downloading the pbz file by visiting the page in your browser. ie:
Then put the pbz file into the Picasa configuration directory on your Windows box. I don't have windows so I can't tell you exactly where to look, and it's apparently different depending on which release you are running. You could try the following locations:
Windows: C:\Program Files\Google\Picasa3\buttons
XP: C:\Documents and Settings\Username\Local Settings\Application Data\Google\Picasa3\buttons