I so need to get off my ass and write the FAQ entry for setting Avatars...

Anyway, find a post that has an image you want to use as an Avatar. On the left side, you'll see several section. Look under "Options": you should see a "Set Avatar" link. Click on it.

You should be taken to another page with the Image from the post you were at with a box overlaid on it. Move/resize the box (a preview is given on the right) to cover the image you want as your Avatar. (BTW, an Avatar itself can NOT be explicit in nature, though they CAN come from an explicit image.)

Click on the "Set Avatar" button when you're happy.