It used to just do it automatically.
Pepster has it right...unfortunately it will no longer automatically update your avatar. You can try taking a picture of your char in-game and see how it turns out 
Edit: I just manually took a picture, zoomed in, took a picture of it again, and this is my result...I am sure if you spent some time, added a background, you could have a pretty nice looking avatar!
That's actually pretty legit. Thanks.