In User CP -> Avatars -> User Picture Storage Type it should tell you if Avatars are bing stored in the database or the file system. If it's the filesystem you need to make sure the settings are correct (the folder exists) and it's chmod 777).
Try moving from the database to the file system or vice-versa and see if you still have the problem.
Can yo upload avatars via the admin cp? Or is it just as a user you have a problem?
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