I think I saw a similar thing in this topic recently. With the change to the uploaded avatars allowed groups setting, you may need to make sure that your trust level groups have their visibility set to Everyone, Logged on users or Group owners, members and moderators.
If you could try that along with a log out/login and see that helps?
Hmmm. What do you have in your uploaded avatars allowed groups setting? Sometimes people pop ‘everyone’ in and I think that can cause issues. Changing it to ‘trust level 0’ instead can help.
Finally managed to update Discourse version to latest (3.2.1).
uploaded avatars allowed groups setting is set to trust level 0 but issues still there (tried also to add everyone, but nothing changed)