Which begs the question: What the hell was reddit doing that they didn't immediately implement an image hosting feature to keep users on the platform? Imgur rose to fame because it was the darling image host of reddit users, and it wasn't long before imgur needed to pay hosting costs and started sucking users away from reddit and into their own "imgurian" sharing hub.
I guess the internet back then was still in the "Open effort to make the internet awesome for everyone" phase, and hadn't yet gotten to the adversarial "Capture users and never let them leave" phase.
ImageShack removed images that became too popular, which created maximal outrage with the most people, just as content was going viral. Images hosted on ImageShack would randomly get corrupted, and it'd be difficult to reach support to fix this. ImageShack was annoying. You'd try to go directly to the .jpg URL and it'd load the HTML website with lots of ads. In order to upload to ImageShack, you'd have to register an account and potentially pay money.
Imgur was a breath of fresh air. They didn't do any of those things. It was just the simple reliable free image upload service people wanted. So it took over ImageShack's role almost overnight. Imgur eventually rolled in their own exploitation, but they did it a lot more moderately than ImageShack.