It has been awhile since I updated the status of the bake fail problems. Bake fail is well and healthy… but, the Lindens are working on removing the fail part.
Back in March 2012 the Lindens were tracking down the problem. The failure to properly rez the avatar was not a simple failure. A number of things in the overall Second Life™ operation cause the failure. After tracking down as many of the failure triggers as they could they started planning the fix.
If you are interested in know how the system works now, read: #SL Clouds, Grey, and Blurry Avatars. Or the short version I supply in the forum Answers is here.
The solution the Lindens have come up with is a server side compositing engine. Rather then do the compositing in the viewer and upload it, a folder named Current Outfit will be used to contain a list of the items an avatar is wearing. The folder is updated automatically as you change appearance. When the folder changes I suspect a dirty flag is set probably posting a date and time of the change. Some message is likely sent to the server after some time period. At some point the Compositing Service on the Linden side pulls the list from your Current Outfit folder and bakes the composite texture made from your skin, tats, and clothes. That server will cache the texture. As others need your appearance texture they will get it from the Compositing Server’s cache.

