@whitts no... the title doesn't get injected. the code just takes the value of the title attribute from the <img> tag and displays it as a tool tip. you need to add the title attribute to the <img> tag with a value.
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I have stupid question, but on my instance I can't find any option to change user avater themesalve.
In admin panel I can do this.
Of course I have enabled "Allow users to upload profile images"
but on "Edit profile" panel I only have "Change username", "Change email", and "Change Password"
Did you check /admin/settings/reputation, maybe the reputation setting is higher than 1 which would prevent new users from uploading profile pictures.