Pagatronix runs on Community Server (CS) and CS is crap at handling avatars. It compresses the image too much, so the quality's really bad, and it won't allow animated gifs.
You're probably better off ignoring the instructions for uploading an avatar shown in the walkthrough above.
It's a much better bet to upload your favourite image to an image hosting site like tinypic, and then paste the image's URL into the Avatar URL box in your profile.
The maximum image size is 100 pixels wide by 106 pixels high. Any bigger and it'll be resized with a resultant compression and loss of image quality.