If you migrate your blog, your template will be preserved as-is. It's in what we call "Classic" template mode. It will be dynamically served, but you won't get the drag-and-drop customization. You also won't get labels.It seems, then, that dynamic loading works w? your old template after migration, & that what we're looking if we want to access labels and drag & drop is the eventual need to re-create a template in the new format. No immeditate pressure to do so, though, which is grand, & methinks the labels will be worth it, esp. given that there's an existing layout insert for custom blocks of HTML / Scripts & a way to view your existing template to grab the goodies.
New blogs have Layouts by default, but can switch to Classic mode (there's a button on the Edit HTML subtab page).
You will be able to upgrade from Classic to Layouts, but, as the Layouts template language is completely different (but significantly improved), you'll lose your prodigious customizations. We make a best effort to save straightforward changes (sidebar lists, for the most part) but your milege will decrease the further you have gone from the stock templates.
You can see that there's a "View Classic Template" button on the Edit page, which is there to make it easier to copy over anything that the upgrade missed. (I'm going to a have a fun time w/ my blog... might just take the opportunity to design a new one.)
I'm excited to see what folks will come up with when Layouts's Edit HTML is available. Dragging and dropping in the official templates is fun, but doing it with your own template design is even better.
Oh, and as for mass-labeling, there's no interface for that. You can, however, use the new Gdata API (based on Atom 1.0) support to change labels. Atom categories === Blogger labels.
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Ramani, I guess we'll have to develop new methods. There's a paucity of serious class/id attributes, and it seems even walking the DOM is going to be tricky.
As things stand now, you can either keep your template, in "classic" mode (dynamic serving but no layouts, and therefore no labels), you can use a new beta default template, or you can wait a while to migrate 'til the HTML editor goes live on the beta, & (hopefully) re-create your template as closely as possible w/ added "layouts". This will involve migrating individual customisations & widgets from current to beta... & testing each one to see whether they fall over.
I'm optimistic that once the HTML editor goes live in beta, this will be a useful & interesting process, and that a second generation of mods will emerge that can live with the new platform.