DL, it took me a while to figure it out, too. You do have to sign up for an account at wordpress.com first. (It's free.) It attaches to your email address, so you have to be using the same email address on both sites.
I'm still not sure what's causing it to be turned into a round shape, I know it's not stored that way at Gravatar.
I'm still looking at packages to support locally stored images here, but there are permissions issues to work out. Gravatar seems to be the coming trend, though, especially for those who want to use the same avatar across the Net.