So what do I mean? Take a look at the admin / mods right here!
The general idea is to enable certain members to have a background for their avatar, like the staff here do. Basing this on usergroups would probably be the easiest way. Keep in mind if someone is part of two or more usergroups that are able to have a special background, the end user and/or staff members need to be able to set which background is appropriate for said user. A hierarchy (e.g. a value for each background) could also be set up (managed by staff of course, with optional overrides) to automate this process.
Some forums may not want their mods to be noted as such when outside of the sub-forums they moderate, and as such may want an option to have them automatically not show the background in certain forums.
The avatar the user chooses preferably should not be modified by the hack, in case of the person being demoted, or the background being used as a contest prize on the forum, etc. The hack could use GD or something to combine the background and the user's avatar into a new one (if needed, I'd recommend storing a copy of the original avatar somewhere in the server or database for backup purposes), but not to replace the avatar direcly within the user's profile. Something like a conditional statement around the avatar block in a post to resolve all of this. Or, a conditional could be used to place the background around the avatar assuming the appropriate conditions are met. No merging of files needed. GD may be used if an optional idea for the hack is used where their name is on the avatar like vB.org, although the name may not necessarily match the user name, akin to here.
A nice add-on to this hack would be an ACP area where a staff member can give someone a background for a limited amount of time to support the contest idea.
Showing all possible avatars within their UserCP and member page would be nice as well.