BuddyPress.org

Check your plugins list, and that will tell you what version of BP you have, though if you just installed automatically, you probably have a 1.2 version.

I would switch to the bp default theme and see if the gravatar are still pixillated. Assuming not, you have a theme issue, and you’ll either need to find the code that calls the gravatar to appear, or check with the theme author to see if he can recommend a fix.