1. Upload fallback avatar
  2. Select fallback avatar
  3. It will be shown as a success and display it as your current fallback in the UI, but others will not see the switch, and if you relaunch VRC you will see that it did not switch successfully
As of Build #1290 I've noticed that setting your fallback avatar no longer works for user uploaded fallback avatars. I've had a fallback avatar unchanged since May 2022 no longer able to switch into (it is also 5 MB texture memory so it still adheres to the new texture memory metric). I've also made a new fallback as well experiencing this issue despite being Excellent on both PC and Quest, being marked as Fallback in the Quest SDK upload, and being only 1 MB of texture memory.
Another useful detail, for anyone using VRCX if you try setting your fallback within there, it will return an error for any old or new fallbacks you have uploaded:
400 Bad Request
"Avatar is not marked as a fallback․"
"avatars/<<<avatar_id redacted>>>/selectfallback"