re: entering edited avatars in the Arena - this is not possible. Only a real Gaia avatar that you can create with items actually in your inventory may be entered in the Arena.
How to make them? Well, we have a whole subforum for that! Check out 'Editors Resources and Help Desk' in this guild -
this Photoshop tutorial and
this Paint tutorial are the two that cover the most ground, and there are many other tutorials on how to do specific things (hair, lace, lightsabers, recoloring, etc). In essence, all editing is is taking a Gaia avatar, opening it up in an art program, and drawing on it.
To put it in your signature, upload your finished avatar edit to Photobucket or another image hosting site, copy the URL of it once you've uploaded it, and paste that code into your signature between a pair of
tags, same as any other picture you want to display. I'm not terribly familiar with profiles, so perhaps someone else can help you there.
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