I've been trying to use my (free) Brinkster account to host images for my blog, but they seem to discourage direct linking from any pages not on your Brinkster site, so I searched for (free) alternatives.
Luckily, image hosting is also a large concern for the many people who use online auction services. I found a very good resource for picture hosting, each with summaries and rankings at Auction Orbit:
http://www.auctionorbit.com/freeimagehosting.htm
The one I went with is http://photobucket.com. They allow direct linking, up to 2500 MB/month bandwidth and 100 MB of storage. Did I mention the price was... zero? Very hard to argue with that. They'll even remove the bandwidth and storage space restrictions and give you access to FTP upload if you support them with a donation (as little as $5.)
Another interesting one was http://www.imageshack.us. You don't even need to create an account. Just upload an image and they'll display a link you can use to reference that picture. It will stay active until one year has passed without any hits. You can also create a free account, which will allow you to manage your pictures, view statistics, upload multiple pictures with a .ZIP file, etc.
Walagata (http://walagata.com/) also offers free image hosting, but only allocates a set number of free accounts per month. It looks like the window is currently closed for free accounts, but there will probably be more in a few weeks.
-Chris