I believe that after taking a look at the image info, any and all avatars bigger than 120x120 are scaled down to that size. My avatar was originally 154 x 150, but it is now 120 x 120.
If you want to get a good image quality, best format to use is png and best procedure, like Lord said, would be to upload the image to a site and then link it.
If you really don't want to do that, then open up your avatar in GIMP or Photoshop and scale it down to either 150x150 or better yet, 120x120 (then sharpen it or do any adjustments you want) and save it as a png, that's what you will use as your avatar.