Well if I increased the avatar size limit, then I'd have to ban animated GIFs from people's avatars. Even at the 100x100 limit, some of the animated GIFs that people upload create a noticeable lag in the forums, especially if they post several times on one page.
The biggest problem is that people don't know how or simply don't have the software necessary to properly optimize JPGs and GIFs for web viewing. This makes the files 2-3 times larger than they need to be and creates difficulties with slower connections.
Although the 100x100 limit doesn't apply to everyone. Matt's avatar is something like 250x250; but he's a special case.