Soo, if you upload an avatar greater than 192x192px, it gets automatically resized to that and blurs the image in the process. E.g., here's my original 200x200 on the right and the uploaded version on the left: I asked @The Grinch (Thanks!) about his since he has the same size avatar; it was resized as well -- apparently a XenForo default!
@Misty made an edit to the code quite a while back to get around this, but code changes are reset each time XenForo is updated, so they must be re-applied.