it seems like uploading avatars works fine for me, only like Priestess LKRice said, it takes a refresh to show up.
Do you use Firefox or another browser?
Does your picture fit the criteria (smaller than 180x220 and either .gif, .jpg or .png)?
One other thing I could think of: Did you click the radio button next to the text "Upload your avatar (Your image must be smaller than 180x220 pixels; .gif, .jpg, .png accepted)"?
I remember I forgot that once and it doesn't work without clicking it.