I was still getting errors on uploading avatars on my installation (BP1.2.4, WP3.0b2 Network) using BP in a sub blog. Kept giving me an error (asking if I had write permissions) and tried a few other things, but I finally got it to work by disabling the two lines in bp-custom.php:
// define( ‘BP_AVATAR_UPLOAD_PATH’, ‘/var/www/wp-content/blogs.dir/2/files’ );
// define( ‘BP_AVATAR_URL’, ‘hxxp://example.com/files’ );
