I just got Mountain Lion. On previous versions of OS X, I could choose a photo from the filesystem as my account avatar. This doesn't seem possible under the Users & Groups section of System Preferences.
Any ideas on how to do this?
I haven't found a way to choose a photo from that popup dialog, but you can add one by dragging an image file onto the picture itself (that dialog may have to be closed for this to work).
You can either drag and drop an image file into the avatar selector "well" (next to the Change Password button) or copy and paste image data (open your photo in Preview, Select All, Copy. You will have to click the avatar selector first so that it's focused (has the blue border around it) before you Paste.
I did find the actual folder where they are stored
Click on your hard drive/library/User Pictures
I created another folder there for my custom pics and they show up just fine.
To expand upon what Andrew Swan and Jonathan Poh have said,
NOTE: Drag and Drop DOES work but only when you drag the image onto the Users & Groups window, over the user's avatar (Seen in picture from Step 5). I kept trying to drag the picture into the edit pane (Like in picture from Step 6)