Instructions
Sign into your Xbox profile and select the "Customize Avatar" section of the "My Xbox" menu.
Select "Gamer Picture" and move your avatar into the position you want represented on your profile picture using the thumb sticks.
Photograph your avatar by pressing "A." Re-take the picture by pressing "A" again, or press "B" to exit the menu.
Choose "Save and Exit" then open the "Edit Gamer Profile" section of the "My Xbox" menu. Select "Change Gamer Picture" and scroll to the picture of your avatar, then press "A" to set this as your gamer profile picture for Xbox Live.