Click on your current avatar and select "Replace Avatar". You can then re-upload the pic from your computer (or wherever it is stored) and use that one. The pics are fuzzy because they were stretched to enlarge. It took me about a minute to fix mine yesterday. Easy peasy.
I believe smilies in you signature are a paid feature now. My is gone too. It was part of the "trade offs" Nifty mentioned. We got things like unlimited storage in return.