Wow, if you look at the blog, it's immediately obvious that Picnik was really loved by a devoted fan base. I'm not endorsing the Picnik shutdown decision (I think it sucks), but you have to ask yourself, "If my service closed today, would there be this level of outcry?" If so, you're doing something really special.
Aviary recently pivoted to become an embedded photo editing service for web + phone apps. I wonder if this is an opportunity for them.