the 12-18 crowd stormed in like bulls in a china shop posting sexually explicit pictures, profanity, etc. which created a whole new slew of headaches. It's a valuable/lucrative audience, but you need a fair amount of policework to prevent things from getting out of control...One of the fellows at SmugMug has blogged about the "free" question, and pointed out this particular problem with "free". When it's free, you capture a part of the market that most wants anonymity and no recourse for their bad, possibly illegal, behavior. 12-18 year olds exchanging sexually explicit pictures via your service is a problem of epic proportions. Stopping it could very easily become your full-time job (and the full-time job of a dozen more people).
I know you've said you've already halted free distribution. I just wanted to point out that this one is a well-known problem with free, and if you don't have good, automated, methods for dealing with it, it can be a huge resource drain.