animated sigs are in gif format, Gif requires a max of 256 color so it will limit the quality of your image though. thats why I prefer to just have a rotating siggy
Seagoat has a link in her sig.. Seagoats Link it gives pretty good directions.. basically you create a folder on your webhoast and title it rotator.jpg ( or something like that with a .jpg at the end) and put the images you want to use as your signatures in the folder.