You should take a look at the latest TOS. If I am not mistaken, the image just need to be framed within a border so that viewers won't link the image to the ads. Also, it is always a possibility to place the the ads above or below the image. I haven't seen an exodus of image hosts from Adsense so far. You have to note that most image hosts are only placing their ads on the main page or gallery pages. They usually put other ads on the pages displaying the images.
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