Hi,
I have tracked this down further. If the image is too large, I.e. exceeds the size limits of the avatar, it breaks.
Thus, the text given here: "Your image file must be of gif, png, jpg, jpeg type. Your image file should not exceed 1.95 MBs. Images exceeding the maximum width of 200 will be resized. Images exceeding the maximum height of 500 will be resized." is completely wrong.
I am using profile pro (before I learnt about all the options you -now- offer..), perhaps this is the issue?
/Mgs