For consumers this isn't too big of a deal. There are plenty of good-hearted people out there and "host my images" isn't something that requires a lot of personal trust (at least, for the kind of images I host). Some hosts don't scale much and can survive off donations. Others become too large and fall under their own weight.

When one service becomes poisoned (as you described it) - I move to another service. Once upon a time that was Imgur, followed by puush, followed by minus, followed by pomfse, and now I use vgy.me and mixtape.moe (when vgy.me's servers go down, which is rare but happens). There are no shortage of image hosts around to choose from.

Your writeup is right on the money. It isn't a service that scales well and any monetization tends to lead to users dipping to greener pastures. Imgur being a strange exception.