Just a thought, as I didn't completely finish reading this thread before answering:
Upload user pictures is restricted to .zip only. This is the only way to bulk upload profile pictures for a number of users in Moodle. Make sure all .jpg files are in the following format: {$username}.jpg ==> 123456.jpg or johnjones.jpg
I did notice this is rather unclear in the docs corresponding with this feature: https://docs.moodle.org/33/en/User_pictures