I got this answer from loveyourbaby.com
Blood in Breast Milk
In most cases of blood in breastmilk, the only treatment is time. There is usually not much pain, unless the nipples are cracked or injured, or the breast tissue is very tender due to engorgement. The bleeding will not harm your baby and it is fine to keep breastfeeding. Blood in breast milk is not uncommon. In cases during late pregnancy or during the first weeks after child birth, the blood is usually due to broken capillaries and intraductal papillomas.
In some cases it may appear that there is blood in the milk when it is actually coming from a cracked or sore nipple . Your baby will not be harmed
at 5:32 PM on Sep. 17, 2010