Image editing is a fun little task to do, but the problem is that in order to do the really powerful stuff (outside of the simple things like "remove red eye" and "rotate 90 degrees"), you need application software to do it. When you talk about this application software, you are probably looking at a tool like Adobe Photoshop, which is very expensive for a home user.
Adobe is starting to figure out that sites like Flickr, Photobucket, and Webshots are actually competitors on some level, so within the last few months, they have released Adobe Photoshop Express, a Web based tool that allows you to do a lot of the things that Photoshop does. They also give you 2 GB of storage for free. The goal here, of course, is brand recognition, which many software companies are finding is incredibly important.