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Don't misunderstand me, I don't see a huge problem with allowing custom avatars. At least in some kind of limited form. Perhaps if you attained a certain trust rating, you could then be allowed to upload a custom avatar. It would add some value to an account, and it would weed out the people who would be more prone to abusing it.
I said Bungie doesn't seem to trust the community to not abuse this. Or, at least the Web Team. I remember Achronos telling us one point for his justification to not allow custom avatars. He said when they were first designing the site, genitalia was already appearing as avatars on the boards. Mind you, that would have bee before the site was available for public use, which would mean Bungie themselves were already abusing it. Which...is kind of expected I suppose, but still a valid justification.
I hope Bungie warms up to the idea of custom avatars at some point, but I'm not gonna hold my breath.