Ok, I did what you are showing in your screenshot exactly and it's not resizing a picture that is 460x460 to 300x300 and get an error message when I try uploading.
I'm guessing that maybe it shouldn't be installed where the other extensions are?
So it's active as soon as I changed those settings?
Actually, right under the download link it says to go to the ACP and enable the extension in the customize tab>extension manager and to then go to Avatar settings. Is that no longer correct?
I just installed this on my board in the same directory as my other extensions but it's not showing up in the extension management section. I'm currently using version 3.3.14 and the readme file says I need at least 3.2.3-RC1 so I think I'm good there?