Adobe has been planning this move for a while now and here it is, Photoshop Express. Launched today as a beta, with paid subscriptions/features to come… Free for now, with a 2 GB limit. You’ll hit that limit pretty fast but you can keep your photos on other online services and just use the image editing features.
It should be interesting to see how other services like Picasa respond. But for now, the main limitation is uploading speed/bandwidth.