As I recall it wasn't banned because of copyright issues, it was banned because people were doing the equivalent of spamming. The same image uploaded 20 times or more with nothing changed but the coloring (often images that had been originally uploaded by somebody else). Storage cost a lot more then and they didn't want to become mainly a Sonic fan art site. They knew if they tried to put in limits they'd be dealing with rules lawyers and constant whining, so they simply banned it all. Maybe a little extreme, but justifiable at that time. Even with cheap storage and filtering tools, I've seen complaints on sites over the years about too much of X genre of art (Pokemon, MLP, etc) being uploaded.
As I recall it wasn't banned because of copyright issues, it was banned because people were doing the equivalent of spamming. The same image uploaded 20 times or more with nothing changed but the coloring (often images that had been originally uploaded by somebody else). Storage cost a lot more then and they didn't want to become mainly a Sonic fan art site. They knew if they tried to put in limits they'd be dealing with rules lawyers and constant whining, so they simply banned it all. Maybe a little extreme, but justifiable at that time. Even with cheap storage and filtering tools, I've seen complaints on sites over the years about too much of X genre of art (Pokemon, MLP, etc) being uploaded.