I decided it'd be helpful to create a tutorial in the same sort of category as The King of Durf's topic on Adobe Illustrator, but using software available on any computer and without using pirated or expensive software. Resizing steps at the end of this tutorial make use of Irfanview (a free image viewing program) though this is entirely optional.
Albino Black Sheep has a very good MS Paint tutorial located
here. I can't recommend this enough if you're unfamiliar with MS Paint... It's even taught me a few things of which I was unaware.
Step 1: Starting the Image
To begin with, open a new image in MS Paint and select Image -> Attributes and set the image's length and width as 400 by 400 pixels. This is larger than the normal avatars, obviously, but working with MS Paint will require that the final image be scaled down for quality purposes. Next, select the Line tool and pick the fourth-widest line width.
This will give your avatar the same sort of line-thickness Rich has in the Order of the Stick comics.
Step 2: Drawing your Avatar
Typically, I like to begin with the head of the avatar:
This provides a strong base for the rest of the avatar, especially since the focus of most avatars is on the head. We're dealing with stick figures, after all. The head should be roughly 150 x 150 pixels, though this can vary depending on what you're depicting.
You'll notice that the mouths are typically located roughly forty pixels above the bottom (the purple line in the above diagram) of the head, though they're a little lower than that on the females. The eyes are always located around halfway up the head (the green line in the diagram). Typically on the ladies it's roughly on the halfway mark while men are almost always between halfway and three-quarters of the way up the head.
From there, you can begin to add details. To begin with, the body should be about as wide and as tall as the head at the shoulders, and the combined height of the legs and boots should be roughly the same length as the body. The arms typically hang down to the waist when at rest, though they can be extended pretty much as desired when the pose calls for it, as Rich does tend to do the same.
The above shows some basic line work. Note that all the lines (except for the detail work in the boots and the eyes) are exactly the same width. The eyes were done using ovals drawn using the circle tool and filling in the center, while the boots are one line-width smaller which typically allows for finer detail work. Remember that you're working with an image a little over three times the size of an actual avatar at this point, so line work which is too detailed may become a large black blur when it is shrunk to it's proper size.
Optional Step: Female Avatars
As the below illustration of Haley will show, the proportions for women are slightly different.

The women are proportioned so that the body is only roughly two thirds high, and two thirds as tall as the head. The legs are slightly longer than a male figure's. In the example above, as the measurements show, The breasts are a little less than half of the body length, and stick out slightly more than the stomach.
Optionally, if the chick is wearing armor, the bottom portion will be roughly the same but be square-edged like the ladies Haley speaks with in
Comic 417.
Step 3: Coloring your Avatar
Now it's time to color your avatar. The basic rule here, if you'd like to keep things looking Order of the Stick-like, is to use few colors. While you may wish to get fancy and use extra colors for detail work, or add shading and highlights, you really don't need to do so. The following image only uses eight colors, aside from the black for lines:
Just as with the line work, you want to keep your colors simple because fine detail work at this stage may become a blurry, multi-colored spot when it's shrunk down to avatar size. Colors should mostly be used to differentiate between large sections of the character.
Step 4: Resizing your Avatar
At this point, you should have your fully completed avatar. Forum avatars measure 117 x 117 pixels. Now, you'll probably want to shrink it down to a usable size and make the background transparent. Unfortunately, MS Paint offers poor scaling and no real way of making a background transparent, Compare the two images below:
 |  |
| Resized in MS Paint. | Resized in Irfanview |
The one on the left is completed using MS Paint to scale the image to 30% of it's original size, while the one on the right was opened in Irfanview, then scaled down to 117x117 pixels in Irfanview using Image -> Resize/Resample Image set to the Lanczos filter. The transparent background was achieved in Irfanview by choosing File -> Save As and selecting PNG as the file type, and then selecting the Save transparent color and choosing to pick the color during saving. The image will pop up and you can pick any color on the image to be transparent. If you want to use white in the avatar itself, you should go back to your 400 x 400 and fill the background with an off-white shade of gray you haven't used.
If you use any other color for the background (green, for example), this will show up in the dithering Irfanview uses to achieve the smooth look of the smaller image. Take a look at the image below and you'll see what I mean:
See
http://www.irfanview.com/ for more information.
Step 5: Hosting your File
I personally recommend using Photobucket, which allows you to store multiple images, have a gallery, and gives you a bandwidth count so you know how much each file is draining your available bandwidth, but any host which allows image hotlinking will suffice.
Conclusion
That's pretty much a step-by-step guide to how I make my avatars and I thought it might be helpful if I set the process out for others to follow so that they can try to create their own avatars.
My apologies to Rich for ninja'ing Roy for the purpose of the tutorial, but I thought it might encourage new users to try their hands at their own avatars if they saw a familiar face in here.
I hope this was informative!
Optional Tricks #1: Transparency
First, begin by drawing your avatar as normal.
After that, color your image as normal as well:
Now, decide to which items you'll adding a transparency. In the case of the image below, I decided I was going to make the top of the mage's staff glow with magic. Begin by drawing the outline of the transparent item over top of your normal drawing:
From there, you basically need to be good with colors and recolor the items within the transparency area with a mix between the original color and the color to be transparent. This can take some practice, but all it really requires is a good eye for color:
With a bit of practice, you'll find you can use this for a variety of things:
Optional Tricks #2: Avatar Shading
There are some people who prefer to have shading in their avatars. This is a simple matter, which simply requires that the user take an extra two steps after they've finished making their avatars.
First, take your avatar, which you've finished coloring:
From there, you would simply use your Pick Color tool to individually pick each color and alter it so that it looks like a shadowed version of your normal color.
I recommend that you simply use Colors -> Edit Colors, and then select Define Custom Colors to do this. I've found that in most cases, dropping the Luminosity (Lum) of the color by about a quarter of the current setting will do well enough to define it from the base color without looking too strange. You might have to play with it a bit, though.
Use this newly created color to fill in where you want the shadows to be. Remember to keep the shadowed areas roughly consistent with the rest of the shadows on the avatar:
From here, just take your paint bucket tool and fill in the shadowed areas:
And voila, you're done! If you want to get REALLY fancy, you can always go an extra step and add highlights to certain portions of the avatar which are closest to your light source:
And that's all there is to shading and highlighting your avatar! It's not for everyone (personally, I don't really like shading avatars) but it's something each avatarist has to decide for themselves.