First up the top of the page are buttons, click on the 3rd from the left 'user cp'. Now go to 'Edit Options', scroll right to the bottom to where it says 'Avatar' and click on 'Change Avatar'. Click 'yes' for 'Use Custom Avatar', then go to browse and find your picture, click on open. Once complete click on 'Submit Modifications'. You should now have your Avatar showing under your name, just like mine
Inserting a Picture into a Message
When you are creating a new message if you scroll down the page a little you will see the field 'Attach file:' next to it is a Browse button. Click on this button and locate your picture from your directory, click on Open. The file path and name has now been inserted. If you have finished typing your message you can click on the Submit Reply (Just a note, you need to have some text in the Message field to submit a picture even if it is just a fullstop '.'). You will then be shown your message with your picture attached at the bottom.