Steve you know at least what I am talking about since you meantion custom avatars since yes vb also states to set attachments and customavatar directories to 777 in there product.
To write a file to a server the directory must be writable. I am not a server tech so I can not tell you how to setup a LAMP server. I am telling you that if you want your server setup to allow files to be uploaded to a directory with 755 permissions rather than 777 you need to contact your web host.
I am just answering your question because having directories to 777 is a server requirement not software. I have done upgrades on peoples sites where they have things set to 755 and it works but that is because there host setup the server to work that way.
I will look around for some info on the net on server setups and post anything if I find it but the quickest answer on a server question would come from your specific host since they manage them.