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(which it really should do)

What I really wish it would do is if I wanted to paste in the link of a .GIF, and it automatically shrunk it for me instead of shrinking it and turning it into a static image.

I have to object. The point of linked avatars is that they are dynamic.
This way, one can put an image onto a server and have all accounts on different forums use this exact image via URL so if you swap said image, your avatar will change on all forums and you won't have to change them one by one.
Another possibility gained by linked avatars is this:

Random avatar images. A link that returns an image randomly chosen from a list. Every time you reload the page, the image might change.
Don't ask me why someone would want to do such a thing, but I do (someplace else).