Avatar's showing up black after upload

I having a problem after updating my site to 3.1 and updating to the latest version of the avatar plugin 3.5.4.

I used to have avatars installed in mu-plugins and wp-content. I removed the .htaccess file reference. At first I wasn't able to upload anything, but went in and changed the file permissions for /wp-content/uploads/avatars/ and I am now able to upload.

I can even crop (but it is showing up what looks like a header cropping area in the background before my front cropping area). But it shows me the box for the avatar. But when I crop and save it just turns up black. I tried different picture types.

The alternate upload button works, but it doesn't allow me to crop.

Thoughts? Thank you for your help.