With the latest update, Linden Labs seem to have broken something related to avatars that use deformers to increase the size of the base human avatars. This has been observed in the WereHouse Dire Wolf avatar as well as other avatar makers such as the Sea Wolf Ancient dragons. This issue causes avatars to either sink into the ground or hover over it.
Note that this only affects the Dire Wolf currently as the other Dire creatures do not use a deformer.
There is a JIRA on the LL site currently and we are hoping the Lindens will fix this issue as soon as possible.
https://jira.secondlife.com/browse/SH-2574
Because this is an issue with Second Life itself, there is not much we can do about it, however we have been looking for workarounds for it:
Step 1: Turn off the AO (deformer will also turn off)
Step 2: Goto Develop menu (Ctrl+Alt+Q if hidden), Avatar submenu, Force Params to Default
Step 3: Turn on AO
We are trying to find a more permanent solution to this issue, and we will post and roll out an update if we can find a suitable solution.
We’re sorry for the trouble and doing everything we can to resolve this issue.