You must have jQuery loaded in your page for the script to work. Check your template, and if it does not have jQuery, insert this before </head:>
<script src='http://code.jquery.com/jquery-latest.js' type='text/javascript'></script>
You can install this hack by adding an extra HTML/Javascript gadget in your sidebar, or paste the code to an existing gadget. The gadget must be after the popular posts gadget! Or you can put this code in your template's html, just before </body>. If you have my other popular post hacks, like shuffle, shuffle and limit or Trim Blogger popular post snippets right, you can put this code in the same place, after those hack's code.
In the script there is the variable var newSize = 100; which defines the new size for thumbnails. You can set the new size smaller or bigger than the default size, which is 72.