For days I've read that it's the latter, only for it to possibly turn out to be the former. Interestingly, neither website says where they get their information from, so if not for users posting locked-out black badges like this one I'd wonder if I should tsk-tsk about "fake news".
The only thing I can say is both things seem to be true: Photobucket's ToS says (emphasis theirs): "The free account does not allow any image linking or 3rd party image hosting" but this might not necessarily result in a ransom situation for any free user - though at any moment it certainly could, considering "free user" does not compute to "light user".
With Photobucket tossing word salad with such impunity, I've downloaded my albums - a measly ~60MB for images on both blogs (I don't use Photobucket for personal image hosting, so at least there's that) because when web hosts of any kind - blog hosts, image hosts, whomever - "get funny", and by "get funny" I mean do strange, unexpected, and quite sudden things without notice, it's almost always presage for a disaster.
And given any notice at all (and/or any time to act upon it) I don't f*ck around, so I downloaded them. My next "someday" project will be rewriting blog image links after I upload them either here (Dreamwidth has its own image hosting) or Wordpress.com (which much to my eternal chagrin, hosts my other blog, but also offers a few gigs of free media storage).
Oddly enough, images hosted on Wordpress might load faster than they do from here; I think I'm seeing this when I test on pingdom.com for how long background images take to load (they take forever coming from either site, where the web's definition of "forever" is more than two seconds and Google's is more than one, but before I decide DW is slower, I'll need to test again and actually note each site's speeds).
I have to File 13 my Photobuckets, though: PB's been impossible to visit for well over a year without on-page memory use clogging up the pipes; they changed how images are accessed so hotlinking's impossible (the so-called "direct link" brings you to a web page instead of the actual image), and I have three image hosts (four, if you count images I shove off onto accountless imgur uploads because I don't ever want to see them again; in that respect, imgur's literally my online trash can).
For now I divide image hosting between two Photobuckets, Wordpress.com (which hosts images on both blogs via just one WP account) and Dreamwidth. I don't think there's space on DW to move all my blog images here, so they'll probably go on WP, or stay split between DW and WP. Which is...I'm considering moving Anti-AOL to hosted Wordpress just to use a plugin to rewrite all the image links. After roughly 10 years of moving around online MM Itinerant Blogger style, done that, got the t-shirt, so spare me.
Though of course it would save money, if not improve my character, to just rewrite all the links myself.