Re: cannot upload avatars from my local computer
You actually don’t want folder permissions as 777. On some hosts, 777 even cause an “Internal Server Error 500” error. It also means anyone and everyone can read/write/execute in that folder. At the most, you should have 755. Some hosts may differ on this, but in general, these rules follow. I don’t know that 755 will fix anything, but it may, so give it a try.
For the rest of the questions:
What kind of server are you hosted on?
What version of WP/WPMU are you using?
What version of BP are you using?