Dave,
I really don't want to go into legalities, but Alembic already distributes media. These media are called photographs, and I know two wrongs don't make a right, but nobody bats an eye at this. It basically boils down to a question of fair use. I suspect that myspace wasn't really worth $528 million, but I doubt it would have fetched that if they were participating in criminal activity.
With regards to the number of people participating, I suspect that the number would be greater than you think. Remember that more people will choose to remain silent than to voice an opinion.
The latest versions of bit torrent will allow you to remain uploading when you're done downloading.
There are better tools for bit torrent creation than the stuff that the creators put out (there's a whole commentary here about hardcore programmers making great things that are impossibly hard to use). For instance:
http://www.blogtorrent.com/ Will allow an upload much like the current photo uploads, but will create a torrent, put it in the tracker, and make the torrent available for download. It is basically unattended from the administrative standpoint.
With regards to firewalls, bit torrent works through firewalls, but apparently has better performance if there is a hole in the firewall.
Were this to be implemented, I think that agreeing to a license for all uploaded files would be great. It would help to prevent future misunderstandings.
I'd like to suggest using one of the Creative Commons licenses:
http://creativecommons.org/ http://creativecommons.org/about/licenses I think that the Attribution license would fit nicely.
Brad