I am experiencing same problem...
An Error Has Occurred When Attempting To Save The File E:\inetpub\vhosts\star356.com\httpdocs\Portals\4\Forums\SystemAvatar\Avatar_STAR_Patch.jpg. Please Contact Your Hosting Provider To Ensure The Appropriate Security Settings Have Been Enabled On The Server.
I have made sure that the folder exists, and that FULL CONTROL is placed on the directory for the USR.
This copy of DNN is a duplicate of another DNN project in which the uploading of Avatars does work, but in this copied instance, it does not work.
I have gone back and forth with my ISP and tried everything possible to fix the situation with no resolve.
Does anyone have any idea what else may be causing this?