custom gamer pic not changing also can not use avatar screen shot.

Avatar Items are automatically transferred and you can see them when customizing your avatar. Themes and Gamer Pics from 360 cannot be used on Xbox One. The only way to keep to use a 360 gamer pic is to not select an Xbox One pic.

The ability to upload Custom Gamer Pics has been restored. Here are a few suggestions to get this fixed. Are you trying to do this on console with Xbox Avatar, or Original Avatar? You might try using the Xbox mobile app, or if you have a PC with Windows
10 you can get the Xbox Avatar and Original Avatar from the Windows Store. Try removing your account from the console, then power cycle the console by holding the power button in until it turns off, then sign back in and try to change the gamer pic again.
Is your console up to date as well, there was a new update this past week that might have fixed some issues causing this error? You can also put custom pics on a USB drive and upload them with the Xbox Media app on the console.

Another thing to try is going to the Xbox live site on a PC and
customize your Gamer Pic, (Silverlight will be needed.)

There you can pose your avatar and take a "Gamer Pic"

I'm having a similar problem, I cannot use the avatar editor and cannot change my gamer picture (I can still change my gamer pics, but cannot take/save a pic of my avatar. I can only use the generic pictures provided already). I've download/re-installed
silver light but the problem still persists.

Changing your profile picture is not against the ToU/CoC.

Using a custom pic is.You can only use the (limited) selection of gamerpics provided or an avatar pic.

Custom gamerpics is something that is being looked into but whether it happens of not is a different matter.