Custom Avatars may not be larger than 100x100 pixels, nor a filesize larger than 3.9Kb.
Use your regular Photo editing software to resize the .jpg image or the .gif image to the proper size first, then you can use it as a custom avatar.
If you're trying to use an image that is on a server somewhere and it is too big, you will first need to download the image to your computer and resize it, then you can direct load it from your computer to the DIS as a custom avatar.
If you don't have the required photo editing software, go to the FAQ thread in the Tech forum and there's a link to a site where you can get a free program to resize images.