Just another data point: when I finally upgraded my Xperia X from 4.1.0.23(? - stable version) to the latest 4.3.0.12 (I upgraded to the stable 4.2 first, then upgraded again to 4.3), I also lost most of the avatar pictures I had set at some point in the past. Like described above, they do shown up if someone sends me an SMS, but not in the “People” app. The “People”-tab in the “Phone”-app is even worse - there, none of the avatars are displayed anymore. The contacts are also synched to a Nextcloud account, and there, I can still see some of the avatars, though in some cases I only see an older avatar.