It seems like you have to delete your existing avatar first, then go back into Profile to insert the new one. I can't seem to do both operations in one go.

The picture I just tried to upload was only about 3kb, so well within the size stipulated, but it wouldn't accept it. When I looked at the top of the screen, it told me that I'd gone over the 80x80 pixels limit. I reduced the pic a bit more and it worked that time.

Funny it wouldn't accept 96x96 pixels, as I've successfully uploaded that size from the Internet several times, but the link for those is inserted into the bottom box, immediately above the Show Gallery button. Must be a different set of rules.

Hope you can resolve your problem.