Currently we run conversion and resizing code on your avatar as you upload. The output is a JPEG.
If you want to report bugs or suggest new features, please use the feedback link in the footer of every page. That takes you to the Connect site. Vote on things you like. We fixed every bug with 3 (or was it 4) or more votes except one before release. Dan watches it like a hawk and it's the best way to get your suggestions heard.