1) Find a pic you like.
2) Get permission from the person who is hosting it, or host it yourself.
3) Copy the URL of the pic (eg: http://www.yourhost.com/yourpic.jpg) into your clipboard by selecting it and pressing Control+Insert.
4) Go into your MKO settings menu.
5) Select Change in the avatar menu.
6) Paste the URL of your pic into the popup box using Shift+Insert.
7) Press the submit button on the bottom of your settings page.
If you're looking for a custom avatar, you can request one here.

Go into Settings up in the upper left corner. There you will find a button with library on it. They are in there.

If you want to use a different one than on that list, click change and put the url in there.