Originally avatar means the physical form of a divine being.... or something like that, not 100% sure. Something to do with gods anyway.
Edit: started to bug me, so I did some surfing:
Main Entry: av·a·tar
Pronunciation: 'a-v&-"tär
Function: noun
Etymology: Sanskrit avatAra descent, from avatarati he descends, from ava- away + tarati he crosses over -- more at UKASE, THROUGH
Date: 1784
1 : the incarnation of a Hindu deity (as Vishnu)
2 a : an incarnation in human form b : an embodiment (as of a concept or philosophy) often in a person
3 : a variant phase or version of a continuing basic entity