Ok here is what I have found out with the welcome panel and the avatars that show up in them.
Custom and guest avatars work when welcome panel avatar is enabled.
No avatar members and pre-defined avatars don't work when welcome panel avatar is enabled.
No avatar members and pre-defined avatars work when both welcome panel avatar is enabed and news posters avatar is enable.
Also I tried the avatars both ways under a subdirectory and without and the same thing happen on both.
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