In reading about the copyright insanity of Wal-Mart and Ofoto, I'm reminded of how much better the copyright prevention approach works online. In the (much criticized and abused, but in this case, forward thinking) DMCA, there's a safeharbor provision for ISPs so that they aren't responsible for what happens on their network, their members actually doing things illegally are responsible. This makes perfect sense and does have methods and rules about what an ISP needs to do to help remove offending material, but never puts the ISP on trial for the work of their customer. Without this, ISPs wouldn't be able to fund the manhours to babysit and question every single byte on their disk drives.
Wal-mart and Ofoto are making really bad business decisions as the result of pressure from professional photographers, presumably to prevent lawsuits directed at the photo developers themselves. But like Ernest said, this is a silly approach. Every service can have unintended uses and consequences like getting wedding photo duplicates made without the photographer's permission, but the person that took possession of the negatives is in the wrong, not the photo developer. The same goes for Kinkos watching your every move when you use their copiers.
Maybe we could see an end to these silly stories if safeharbor provisions were more widespread. It seems like the one thing in internet law we really got right.