Well, yes, that was, what I was suggesting. Though I didn't completely think this through. Maybe there's a conflict between the sent coordinates and the local physics. I don't know your system.
I don't think that this is the problem because the avatar is fine until another player connects. Also, the client is the master for that character so it sends the coordinates (rotation, etc.) and state (animation) to the server and the server application just broadcasts this information to the other players.
Do I understand you correctly, that your own avatar is dropping trough the floor when a foreign client's model is added to the scene? Wouldn't that mean, that (possibly) all models drop, since all the other clients will have the same problem?
Yes, I guess this could possibly happen, however the avatar dropping through the floor does not happen all of the time and it only happens when the foreign players connect after the current player has already been in the game.
I tried changing the step size and it didn't seem to fix anything. I will try toggling the gravity during the connecting of a foreign player to see if that helps.