I run an image hosting site,
Image Addicts - Free Image & SWF Hosting and it is quickly out growing it's current host. Sadly, the profit from it will not cover a dedicated server, yet. There are changes that need to be made to the script to optimize the revenue, then perhaps :).
That is just my experience though. Of course there are success stories out there, just look at ImageShack.us... they have over 400 servers
. If all about the marketing :).