That make no sense though. If people upload the images onto an external website and put it inbetween images tags then it's fine with that logic in mind :/
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Then just shove something in the terms and conditions, which is what sites like Facebook and MySpace do.
"You are solely responsible for the photos, profiles (including your name, image, and likeness), messages, notes, text, information, music, video, advertisements, listings, and other content that you upload, publish or display (hereinafter, "post") on or through the Service or the Site" From Facebook.
That's what I remember being said when it was first introduced, it made sense at the time, or at least to me.
Plank's idea seems like a good one, but we'll have to see what the powers that be think of it.
If I'm completely honest with you I don't 100% remember the reasoning (though valid points have been raised), I seem to remember that sierk had a good rationale though so I'll ask him and let you know :) Or he might post on here himself.
As far as avatars go, they are uploaded onto the site so we will probably not allow photos in avatars but who knows?
EDIT: Obviously this is about having yourself in avatars, the difference between celebrities and members is pretty clear cut to members of moderation, unless a user is a person of well-known fame, they do not count as a celebrity.