Let me begin by saying that  I have a background working for the marketing and advertising department of a non-fiction publisher. I was very lucky to have some fantastic mentors who taught me (a very young version of me) what makes for effective and a lot of times, inexpensive word of mouth. After all, word of mouth is interest and interest is directly proportionate to sales. Also, as a native New Englander, I like the idea that I can get maximum impact for little or no money. Sweat equity is cheap and it can make the difference.

I am going to break down the benefits/pitfalls for published and unpublished as I see them.
Published:
1) Name recognition... In this day and age of smaller print runs and limited advertising budgets, some publishers are actually asking authors to submit a marketing plan for their soon-to-be published babies. Name recognition means that it is one more place that new readers can find you. They google your name, find your blog and depending on the content of your blog, most will find some reason to relate to the reader. Readers relating with authors mean that they are going to remember your name the next time that they a re perusing the bookshelves of the local bookstore.
2) Attracting new readers.. linking your blog with other author sites and blogs means they will find you as they search. Again, the more a reader identifies with your writing style and your books the more likely they are to pick them up off the shelf.
3) Another promotion opportunity... bookmarks, postcards, pens and pencils cost money. As a new author you want to get your name in as many places as possible. Blogs provide contact for media (especially with usurgence of blogging interest) and showcase your current and previous releases.

Unpublished (I abhor the aspiring moniker):
1) Investing in your writing career... Say that Jane Editor gets your latest manuscript in the mail and while she likes it she is questioning putting a newbie into a slot that could easily fit her NEW YORK TIMES MULTIPUBLISHED AUTHOR (read in caps, cause it's that big!). She spys your email and blog address on the cover letter and decides to take a quick coffee break and slide on over while she thinks about her choices... one cup of coffee later and hopefully, engaged and enthralled with your writing voice she picks up the phone to make you a wonderful, multi-book offer... It could happen.
2) Practice, practice, practice... writing on a daily basis is habit forming. A good habit and much better than those cocoa dusted truffle thingys that add 20 pounds by just looking at them. This is a great place to brainstorm, journal your writing woes and even vent... though I would refrain from venting about anyone who could potentially buy or sell your book.
3)Ease of use... blogs are easy. In fact, they are so easy that they practically write themselves. Websites like blogspot take all of the guess work out of creating a blog. All you have to be able to do is write... hmmmm!

Now, for the downside... It is a bit of a time commitment. Blogs should be updated frequently so that those who are interested continue to be interested. Also, it is highly probably that you can become so enamored of your blog that you spend endless hours blogging, surfing for other interesting blogs, and writing about publishing blogs that you don't get your book done. It may be one downfall, but it's a big one!