I just purchased an XBOX with Kinect for my family and I was able to create an avatar for me but how do you create an Avatar for each of the members of the family?
I think you only get one avatar per account. Try logging out of your active account (you will need to re-enter your password when you log back in later). Once you've logged out, the Xbox should let you create an entirely new account with its own avatar. I suspect this means that the new account will not be able to access Xbox Live without a separate subscription. Hope this helps!