I have dependencies installed local on my machine (~/.m2/repository/blah/blah/blah) and m2eclipse is not recognizing them as there - I think m2eclipse is using its own maven ins
Check that the jar was installed properly. Maven does not give an error when you provide an incorrect path to the jar when installing to local repository. The jgravatar.jar was not in my ~ directory when I ran the command below.
mvn install:install-file -Dfile=~/jgravatar.jar -DgroupId=jgravatar -DartifactId=jgravatar -Dversion=06292012 -Dpackaging=jar
[INFO] Installing /Users/steve/~/jgravatar.jar to /Users/steve/.m2/repository/jgravatar/jgravatar/06292012/jgravatar-06292012.jar
[INFO] Installing /var/folders/gz/gjyqtkzj3ys8lpmh_38qvmn00000gq/T/mvninstall2662938607942511865.pom to /Users/steve/.m2/repository/jgravatar/jgravatar/06292012/jgravatar-06292012.pom
[INFO] ------------------------------------------------------------------------
[INFO] BUILD SUCCESS
[INFO] ------------------------------------------------------------------------