So has there been any updates or changes based on this thread? I'm new to Pun and have encountered the same issues. Has anyone written a mod or a quick update to allow users to specify the TMP location?
Also for clarification my issues is NOT related the permissions on the img/avatar directories and it is NOT related to php safe mode (which is off). So based on what I've read from everyone else, this is related to the default tmp directory PHP uses. If I can't get my host to change the permission on that directory, I'll not be able to use avatars. Kind of sad... 
So I'd love to find a work-around since it seems as if many people have experienced similar issues.
Thanks.
-dt