Picture vs. Avatar
 

Arent they supposed to be two different things.

When I upload a picture it works.

But the avatar option doesnt even let me do anything to be able to put one there.

And the posts are not showing what is supposed to be avatar ( nor the pic ).

Am I missing a setting somewhere?

Please see attached pics.

You haven't set your usergroups to use avatars.
AdminCP -> Usergroups -> Edit (insert usergroup you want to edit here) -> Can Use Custom Avatar.

Thank you Speysider. That did the trick.
:)