I was paying for it, then they removed that option and went 'free' for everyone....with ads. Never understood why really....and always always wondered about the bandwidth etc

The problem is that it requires everyone to pay for it. Any one individual will get no noticeable benefit by paying for an image hosting site, since all the rest of the content they view will be from free sites. As a result, no-one pays for these sites. It's a vicious circle.

Even if I'm willing to pay, there aren't enough other people to make it viable. Plus, a large part of the value is the low friction upload.

That doesn't make sense to me. You could do this now with S3 (although you might need to write the slick interface); scaling shouldn't break anything, though pricing might need to correspond to how much you upload.

The S3 model means content creator pays for bandwidth, content consumer pays nothing. For the use cases that imgur and similar image hosts provide, that wouldn't work. And as you mention, that's high friction for the uploader.

I don't have a solution to the problem other than big pocket provider offers it as a public service. Somewhat like Let's Encrypt, or Cloudflare.

Edit: I suppose somebody could make a slick interface that uses parasite type storage and redirects...stealing storage from various free services like Google Drive. Offer some kind of karma points for creating and donating new Google Drive, OneDrive, etc, credentials. Would likely get shut down though.