Trust me folks it does work. The problem, as I've seen it is that people are uploading pics that are greater than the 64x64 pixel size limit. My little animated gif is 60x60 and it uploaded without problems last night. Anybody who is having problems needs to reduce the size or crop their pics. To test it, I tried uploading a random pic for an avatar which was quite beyond the 64x64 size limit and it did return an error.
If you guys are having problems, check the pixel size of your avatar. If it's beyond the 64x64 size limit, you have to reduce it. You can even crop it. Just keep the pixel size to a maximum of 64x64 or less.
As for the tags....ask Shawn. It will be up to him whether or not he enables it.