I think I remember I had the same problem and it was because my photo was too high definition to start with. When I reduced it as if for email and then used that file to work from and reduced that I think it worked. I know it was only my obstinacy, and a lot of help from Tim, that eventually got mine to work. I haven't touched it since, in case I lose it again.
There was a thread about avatars a while ago, see http://poultrykeeperforum.com/viewtopic.php?f=19&t=5826&hilit=Avatar
Which may or may not help. You'll see that getting an avatar is somewhat of a rite of passage on here.