UPDATE: As noted by gfriends (geez, you guy do find things quickly, huh!?) there's a now an option to use the first profile photo as a thumbnail picture, so Avatars module can be uninstalled. It's in Admin > Settings > Advanced Settings > Profiles .
To OP (HL): You're welcome, you're welcome, you're welcome.
No, upon switching no data is lost. Avatars are deleted only when you uninstall Avatar module. However it would be very confusing to have avatars which are not displayed anywhere.
Exactly. Why would anyone want to switch to profile photo, and keep the avatar module installed? This option is strictly for those that do not want to use the avatar module.
To OP (HL): You're welcome, you're welcome, you're welcome.