As of yesterday, the problem was resolved. Photobucket CEO Alex Welch stated on their blog:
Moving forward, weâ€™ve established open lines of communication and procedures with MySpace to prevent a sudden block of Photobucket content in the future. We want our users to be able to share their content and understand it must be within the framework of MySpaceâ€™s Terms of Service for it to appear on the site.
How had the violated the TOS in the first place? Apparently, Photobucket encouraged its users to post ad-sponsored slideshows. From MySpace’s TOS:
Commercial advertisements, affiliate links, and other forms of solicitation may be removed from Member profiles without notice and may result in termination of Membership privileges.
PC World has more on the tussle.