If I have avatar display resolutions limited to 80x80 (Profile Settings > Avatars), but I upload stock avatars which happen to be 120x120 in size, if my users select one of these new stock avatars, then it gets displayed at 120x120 and not the 80x80 limit I've set.

Is this a bug, or was it intended to be this way?

Personally, I'm not fond of having to resize stock avatar images just for the purpose of uploading. It's also a pain if I later decide to increase the resolution.