The Photobucket vs. MySpace fracas took another mysterious turn Wednesday evening, after we got a chance to chat with Alex Welch, chief executive officer and founder of Photobucket.

“We are not selling any advertising on our videos, and on our slide shows,” he told me, pointing out that his company had no monetization strategy based on videos. Fox Interactive/MySpace said that they don’t block third-party embeds as long as they abide by the terms of service.

FIM says that “Photobucket recently began running an ad-sponsored slideshow,” and encouraged users to post these slide shows on MySpace. “We spoke to the company about their actions, but they refused to respect our community’s terms and we had no choice but to disable their service.” Welch said, contrary to MySpace claims, no one from FIM has gotten in touch with him.

The slideshow that is the bone of contention features images from Spiderman 3. It is currently available on thePhotobucket blog. Just to ensure I am not misreporting, here are excerpts from a written statement by Photobucket:

“Photobucket was not contacted by MySpace about this issue… Some of our users choose to share their slideshows with friends on blogs and social networks, of which MySpace is obviously one. This content is not clickable and does not generate revenue for Photobucket – only the branded content and environments on Photobucket do that. In addition, MySpace is claiming that some of these slideshows contravene its terms of service. However, it has decided to block the posting of user-generated videos from Photobucket, not slideshows.”

An article in Ad Week from Tuesday says that Photobucket was promoting this errant Spiderman 3 slideshow on its home page. The slide show is a kind of an experiment with Sony Pictures. “This article, nor our press has anything about us monetizing clicks, views or actions outside of the Photobucket environment,” Welch says in an email.

It is also not clear how many people actually did create and embed the Spiderman 3 slideshow. This kind of brand advertising is important for PhotoBucket, the Adweek article suggests. The company doesn’t deny that, as per their written statement.

Brands have a lot of great content available that users want to share with their friends and networks. It’s a trend, which is only going to increase, and we think it’s good for the brands, for the users and for social networks to provide ways to create and share that compelling content. Limiting users’ ability to do so would seem to be contrary to MySpace’s mission and certainly to ours.”

“We do not see this [dust-up] as a material risk to our business.” Welch says. “Rather its a huge inconvenience for the users to not be able to self express this created content on MySpace, as they do the other 300,000 sites our users post to.” The fracas has now become a he-said-she-said type situation. Who do you choose to believe? Photobucket (as I wrote earlier) is facing a bit of a crisis.

Updated: TechCrunch says they can survive and move on.