You need to save your file in JPG or PNG format. Paint normally saves files in bitmap format, which is not an acceptable file format here. On Paint, go to file > Save As > At "Save As Type" Click on that bar, and find either JPG or PNG. Click save and you're done!
It can also be that your avatar might be too big in terms of file size.
Click on User CP > then click on "Edit Avatar". You have the choice to either upload an avatar of your own, or select one of the avatars provided by the site. ;)