allowing users to register themselves

Have you looked at the Anyone can register setting in Administration > Options > General?

yes, and i have set it to that. but when i look at my blog, i dont see any link or anything where users can register. where do they register?

A good example might be the WordPress Default 1.6 theme sidebar.php file and the use of

<?php wp_register(); ?>

and

<?php wp_loginout(); ?>

Ok – I am not much of a programmer – can you tell me where I put the above code and the above file (I assume I need to download the file from the default theme directory, move it to the theme directory I am using…) correct?

50% correct.

You can download the theme for study purposes.
You don’t move any ‘foreign’ file into a theme’s directory. You look at the default… and learn how it is done with the tags above. Then you put them into your own theme’s sidebar.php.