As announced at E3 (and leaked way before that), Microsoft is introducing Avatars to Xbox LIVE. Here are supposedly the first images of the Avatar creator. These screens are not from the actual Fall dashboard update, but rather, are a "image collage" put together by game site Xbox 360 Fanboy of thumbnails and artwork that will apparently be used in the creator. They should give you an idea of what Xbox LIVE Avatar making will be like — there are icons for clothing, skin colour, height, weight, hair style and accessories.
Source: First images from 360 Avatar creator [Xbox 360 Fanboy]