I once saw a comment about a BAM editor.

Is there any kind of program that allows you to create new character avatars and if there is where can i download it?

www.teambg.com have tools to edit all but one of the BG2 image files (The one they cant is the plt file used for portraits). However, I dont think its possible to add in avatar pics, I think they have to be swapped with existing ones. Its a limitation of 3rd party understanding of the infinity engine rather than the engine itself though, so this may change.

If you decide to try, youll probably need a 3d modeller to create the character and then render from that - it would be nigh-on possible to draw the character in 2d, given the number of frames and angles youd have to do.

Where are those BAM's stored?

<font color="gold">Use Infinity Explorer to find them. ;) </font>

If your into serious modding winbiff might be easier to use - Infinity explorer dosent show everything. But thats just my opinion and both work for the majority of stuff.

Ieambg also have tutorials on most modding, I dont recall one on creating avatars but that dosent mean there isnt one.