Go here:
Microsoft PowerToys for XP (There are other useful gadgets here as well, but look at those later)
Get The Image resizer. (ImageResizer.exe)
Install it.
Right click the image file on you desktop or in Windows Explorer in whatever directory you have it stored in and select resize images.
Hit the advanced button
click Custom, and type in 80 x 80 and hit OK.
Should make you a nice shrunk copy. Upload it on the User CP - avatar page.
I could have done all but the last step for you, but hey, teach a man to fish.....