I delegated the MotM Avatars project to another moderator, got half of the avatars and never heard back on the other half. Not sure what happened to them after that.
As for plans to let normal users have custom avatars, no there aren't any plans of that nature at this time. And considering how hard it'll be to monitor and approve of custom avatars, odds are they'll never be like sig image rules.
I've heard a rumor that another mod was planning to take over MotM but I'm not sure what all they planned to do with it or if it was just a future possibility.
Drawings don't tend to make for good stock avatars. Usually if you ever see anyone on any forum using a drawing it's because it's something personal they uploaded for their use. I won't see much point in hosting the images as avatars unless I feel people will actually use them.
Ultimately the only concrete answer I can give you is that you may want to think up alternative awards. Rep is fine, titles could be done, or you could try and think up something more outside the box.
I'd rather see the first contest before I promise avatar awards, even then the ideas a long shot. That said, the Custom Avatar award in particular probably won't fly regardless of the contests success.