Instagram's new TOS: What do they mean?

Yesterday, Facebook Proposed altering the terms of service for Instagram, asserting the right to sell your photos, likeness, location, etc to third parties without compensation to you. Here’s the exact text of the proposed TOS in question:
“2. Some or all of the Service may be supported by advertising revenue. To help us deliver interesting paid or sponsored content or promotions, you agree that a business or other entity may pay us to display your username, likeness, photos (along with any associated metadata), and/or actions you take, in connection with paid or sponsored content or promotions, without any compensation to you. If you are under the age of eighteen (18), or under any other applicable age of majority, you represent that at least one of your parents or legal guardians has also agreed to this provision (and the use of your name, likeness, username, and/or photos (along with any associated metadata)) on your behalf.”
The internet freaked out and rightfully so. Facebook pulled back and Instagram issued a response. But their mea culpa?
“Our intention in updating the terms was to communicate that we’d like to experiment with innovative advertising that feels appropriate on Instagram. Instead it was interpreted by many that we were going to sell your photos to others without any compensation. This is not true and it is our mistake that this language is confusing.”
I’m no lawyer, but the language in the proposed changes was anything but confusing. A business may pay us to display your photos without compensation to you. And even if you’re a minor, we’re assuming your parents know about these changes and approve, and we’ll sell your photos as well.
I assume that Facebook, in an effort to justify its $1 billion purchase price of Instagram, tested the waters for a naked grab of user’s content for their own gain. Like the Yahoo/Geocities debacle in the late 90’s, the user community would have none of it.
There is definitely a fine balance to maintain when so many people use a site for free – the company has to be able to make money, otherwise what’s the point? And there’s no such thing as a free lunch. But on the other hand, just because your site becomes wildly popular, you do not have the right to claim a perpetual license to any and all content that your users have posted, especially after they’ve been using your service under different terms.
As the universe of media continues to expand and evolve, we as users need to remain aware of the implications of living a life online. Facebook claimed a “non-exclusive, fully paid and royalty-free, transferable, sub-licensable, worldwide license to use the Content that you post on or through the Service.” We assume when we delete a status, some photos or even our account, that all the content is removed from their servers. But is it? How do we know? Again, from their terms of service:
If we terminate your access to the Service or you use the form detailed above to deactivate your account, your photos, comments, likes, friendships, and all other data will no longer be accessible through your account (e.g., users will not be able to navigate to your username and view your photos), but those materials and data may persist and appear within the Service (e.g., if your Content has been reshared by others).
What if while on another site we run across a photo of our kids, that we thought we’d deleted, being used in a Pepsi ad? We would have little recourse, because another change in the TOS limits our response to binding arbitration, a process that heavily favors Facebook.
It’s easy to say “If you don’t want the world to see it, don’t post it online,” but in our eagerness to share with our friends the events in our daily lives, we often forget that once digitized, our content may never be erased, and we are relying on the goodwill and non-binding promises of a large public company that they respect our privacy and intellectual property.
And although Instagram states in their blog that they would NEVER sell your photos, they have not altered the TOS, which, if it goes into effect on Jan 16, 2013, would grant them the right to do so. If they change their minds, that is.