There are several items to check.
First is the Avatar Upload Storage Directory or absolute path:
create the folder.
Then the folder permission should be set to 755
As Rick stated for example;
Second is Full URL to Avatar Upload Storage Directory:
for the above that would behttp://www.vintageracerules.com/images/avatar/default
Once done click on the test link. if it fails go recheck for typos in the path or your folder permissions. If it passes a file will be written to the folder called test.file.
Next is the file size of the avatar.
Then you need to set permissions for the users.
Control Panel » Site Permissions
Can specify a remote avatar -This probably is for the ones that have a avatar now. They can just put a link to their own offsite avatar . They don't upload them to your site.
Can choose a stock avatars
Can upload an avatar -this one is where you specify who can upload