I'm interested in the theory of a user being able to register/upload a gravatar directly in their user account within a hosted WP system.
Is this feasible?
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If you are looking to connect your sites sign-up with Gravatar then you simply can't, since Gravatar don't have a sing-up api you can use.
But if you are just looking to let your users upload there own photos the either Simple Local Avatars Plugin that Chip suggested or one I've used a lot before is User Photo will do the job just fine.
But the better part of User Photo plugin is that it has an overwrite function
get_avatar which will get the user photo if exists or the gravatar if not.
Try the Simple Local Avatars Plugin. It works exactly as advertised!
Mark Jaquith a WP core developer wrote a plugin called Gravatar Signup which checks if the user has a Gravatar when the leave comments (and maybe when the first signup) and if not shows a link to the gravatar site. They would still need to sign up at Gravatar.com but this may be a simple fix to your problem.
Personally I try to stay away from plugins that allow users to upload their own author pics but that's just personal preference.
There's also Gravatar Box which I wrote. It's handy for a comments form, to increase Gravatar awareness.