Copying them to the directory manually does not convert them.
They show up (and show their animation working) in the avatar choices, but when one is selected that is when you get an Error in the My Avatars section.
Seems like it could be just a simple, allow this file type kind of thing, but I'm not a coder here, so I really don't know.
I do agree with your opinion on animated avatars personally, houstonlively, but if I only put what I like on my site, I won't have anything to market, lol.
Many people, especially children, do like animated avatars. I think it would be a nice addition to have the option to offer some to members of family and children oriented sites.