It’s pretty slick. It’ll be interesting to see how Picnik, Splashup, Snipshot, Phixr, Preloadr, and Pixenate (among other competitors in this crowded field) fare in light of this gorilla-sized competition.
I think Apple should enter the fray. I would think it would be a short leap from iPhoto and .Mac to a great web-based editing and storage solution from Cupertino. I’m guessing they wouldn’t want to make it Flash-based, though.