Ok here goes....
Let's go over the 3 options from the Xenium launch menu.
1. TSOP - This option will load the stock MS BIOS from your motherboard. This is used for logging into XBox Live and not getting banned.
2. File - This will allow you to load a BIOS file into the Xenium chip to boot from. BIOS files are usually either 256k or 1MB in size and have a file extension of .BIN. Some of the more common BIOS files are Evox M8 and X2 4983.
3. Hard Disk - this option is planned to be released in the final version of Xenium OS 2.0 but is currently disabled in the beta version which all chips are currently shipped with. In future releases you should be able to keep the .BIN files on your hard disk and boot directly from there instead of loading them into the Xenium flash banks.
So, basically you've been trying to add an XBE file (avalaunch.xbe) as your BIOS file when that is not the correct file to be pointing to.
Hope this gives you a little insight and help you out some.