I use the XAT Image Optimizer to compress/resize my pics.
http://www.xat.com
It's good for compressing all of your pictures, not just the avatar pic. It makes download time a lot less frustrating for us members with 56K.
Your avatar picture has to be less than 3KB I believe, and smaller than 100x100 pixels. Once you meet those criteria, you can upload the picture as your avatar.