First, thanks for being proactive on this. I have wondered how long it would be before those free photo hosting site were used to transmit virus. Most folks don't know those sights are not private and your photo stored the can be accessed by anyone. I have over 4000 images stored on my commercial pay site that i have used for over 10 years. and I sure would want some one to infect those. They can only be accessed by me. They have had antivirus protection for years. Off course nothing is perfect and the system can be broached by the determined.
Has the source of the virus attack be found at Imageshack? One report said it was as the result of the advertisers trying insert ad code in linkages.
You might want to recheck your facts about Cast Boolits. They are not blocking images from out side sources, but have opened their own hosting site. They still allow outside hosted pictures.
I usually read use agreements pretty closely and missed the part in your agreement about free use of my work. Will you new soft ware wash my watermark if I use it? I certainly had no intention of surrendering ownership of my work.