EDIT 19/12/12: Instagram has responded.
Though the language they use seems to want to overly passify rather than address issues. "Your photos are your photos and we respect that." is a nice sentiment but does not necessarily exclude "we have the right to license and use your stuff even though you own the content" By signing up to instagram you are giving them permission to do this even though you do technically own the content you are submitting.
I'm not going to flail my arms about doom, but I will say, artists be aware. Not just about this, but about any contracts you sign. There is some real sketchy language in the fine print here that n