This is the basic technique that I use to create my smilies, banners and the odd avatar. The technique can be used to create running frames using any illustration or photographic image. My initial illustrations are created in layers in Illustrator and brought into Photoshop individually as separate layers and there is a way to import the layers directly from Illustrator... but since not everyone has Illustrator, I will be sticking to the Photoshop and ImageReady side of it.
Below is an example of part of an avatar that I have made - it is the close-up of a spider believe it or not (the entire version can be seen on the Tutorial Index Page...)
In this tutorial (since I am a nice person ;)) I am going to give you a couple of frames of the blinking eyes to download and play with to make it easier to explain. I will leave the fine-tuning of the timing up to your discretion, but the basic principles will help you understand how animations created in ImageReady work.
Here are 3 very simple individual layers, right click them and save them to your hard drive.
First of all... In order to save the layers with a transparent background, I saved them as gifs. Open them all in Photoshop and convert all of them from 'index' to 'RGB colour' as illustrated by the image below.
If you forget to do this stage, you will see the colours look odd in the following steps.