I was able to fix it and I want to summarize the solution, since it requires bit from the other two answers and bits mostly from the Scott Hanselman Blog post.
You need to do a few things to make this work:  
- Put the - [ValidateInput(false)]on your action method.
 
- Make sure your Url is properly encoded (an example is given in the above post) which is done when you use the - blobVariableName.Uri.AbsoluteUrias the string to pass from your view to your controller, so you shouldn't have to do anything there.
 
- Make your query string looks like 
- http://site/controller/action?blobid=http%3A%2F%2F...and NOT- http://site/controller/action/http%3A%2F%2F...the latter won't work!
 
On a side note, since I started, our functional requirements changed and now were storing information about each blob in the database, which allows me to pass parameters other than the blob's uri, which seems like a much safer way to play it. 
A great deal of the community appears to be in agreement that it is a bad idea to pass uri's and to open up your application as to allow you to do so.