Google App Engine just released something similar to this a few weeks ago:

Announcement: http://googleappengine.blogspot.com/2010/08/multi-tenancy-su...

Docs: http://code.google.com/appengine/docs/python/images/function...

It could be set up to do image resizing on the fly per URL parameters you pass to it, and storage/bandwidth is cheaper than S3 if I recall correctly. It's based on the same infrastructure as Picasa.

Edit: In fact it could be easily used to create such a service rather than having to build out the functionality oneself.