I found that the whole .NET thing is just a service you can sign up for. It doesn't sound particularly useful on the whole, but I need it to use this LJ archiving tool, which lets you download everything from your journal, including comments, and the resulting file is searchable. I suppose it's worth the bother of signing up for a Microsoft service in order to be able to easily get a searchable copy of my whole journal onto my hard drive.
I see that Image Shack is still functioning, offering free image hosting with hotlinking, storage for an unlimited number of files (though individual files must be no more than about 1000 KB), and fairly generous amounts of bandwidth. Internet investors must be getting optimistic again, as the number of free hosting sites is increasing. I wonder if we'll get a second dotcom bubble? That could be fun.