In fact, unless your avatar is under 50x50, I'd probably actively recommend avoiding .GIF because it's a limited-color format and the algorithm the component uses for building an output palette seems to be pretty poor (the standard GDI+ algorithm). PNG and JPEG are, I believe, unpaletted, so they're not subject to the same problems.
Finally, note to self: If the code changes you've deployed seem to be mysteriously not working, check that the assembly you're updating is actually being used, and it's not being overlooked in favour of, say, a second copy of the assembly within the GAC. Doh.
EDIT: GDS Screenshot uploading is fixed as well now.