[darkpuppet]

in the avatar settings, click on the button for Upload Image from My Computer..

browse for your picture and upload. Of course, if the picture is too large, you won't be able to upload it.

Best thing to do is register an account on photobucket.com (it's free), upload the picture there first, then link to the picture in your avatar settings by copying the URL under the picture in photobucket and then pasting into the avatar URL field in the avatar settings.