I've read the Avatar Use FAQ found here, and I didn't see anything mentioned about this:

Is it permitted to use the avatar images generated by xboxlive.com in your game?  I'm currently using them in my credits screen to make it more visually interesting.  Is this okay?

The URL for the image is here (substituting your own gamertag, of course):
avatar.xboxlive.com/avatar/(gamertag)/avatar-body.png

I can't find any terms of use on that site. It redirects to xbox.com so you would have to use their terms of use which has lots of (C) messages in it. Consult a lawyer.

However why use those images when you could simply generate a random avatar and draw that - which we know is allowed? If you don't want random then generate a few you like and store the AvatarDescription. Then simply redraw that in your game.

In general, what I get out of reading the avatar use guidelines, is that I can use "random" or "preconfigured" avatars the same way I'd use any other stock art -- except I shouldn't distort, maim or otherwise defile the avatars.
Many of the rules surrounding the avatars have to do with how a user identifies with his own avatar, and not disturbing that identification or putting off the user. Thus, for user-controlled avatars, the rules are stricter.
I would treat pictures of avatars the same I would treat pictures of people. If I had pictures of the team that made the game in the game, I could substitute pictures of avatars, and I wouldn't have a problem with that, as long as everyone involved is okay with it. (Same as getting a picture release, really.) If the avatars are random, then I can't see how a picture release would be necessary.

Now, if you're doing something shocking, or something that might reflect poorly on Microsoft in any locality, they may very well come after you and take your game down, no matter what you think or say. In general, as long as you're not pushing any buttons or boundaries, I wouldn't expect any problems -- but I'm not a lawyer, and I don't work for or speak for Microsoft. All I can say is what I would do in my own game.

Thanks for the replies, ZMan and jwatte.

I'm not using the images in an inappropriate way - just putting a name beneath the (un-altered) avatar image.  And the avatars are only members of my team, and I've gotten their permission. 

That said, I think it's best to play it safe until Microsoft releases more explicit rules on the subject.  I'll just take them out.  Thanks for the help!

So if they are people you know then just record the avatar description for each one and render them at runtime... thats obviously allowed

Then you dont have to worry about what licenses may or may not be on the images on that site.