I had the same problem a couple of weeks ago - it was that the file was too large.
Even trying to upload a pic I had used before wouldn't work - not sure if the site has somehow reduced the size of avatar pics it will accept
Anyway, I solved it my e-mailing some pics to myself on Picasa which automatically reduces the file size - then saved them in a file called Avatar pics.
Posted one of those and it worked fine - simples