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I don't know what XOOPS version you're using, but with 2.2.x you have to set
Allow custom avatar upload? to Yes in Extended Profiles -> User Setting. There is also the setting
Minimum posts required which sets the minimum required posts before a member can upload his personal avatar.
In Misc.Tools you can upload Avatars that are available to all members.
- Try if you can upload images from the admin panel and/or by using a module.
- Check the dimensions (width/heigth/filesize) of the avatar you want to upload with the settings in Extended Profiles -> User Setting.
A while ago I couldn't upload avatars and images from the admin panel at all to my website suddenly.
More people had this problem I remember.
For unknown reason this problem fixed itself.