Sumo Paint is a free image editor that works inside your web browser, without requiring a sign-up. It has many of Photoshop's main features organized in a familiar way and seems to offer somewhat better tools (with a recent upgrade) than most other free Flash-based image editors. (via Ko Maruyama)
Other options do offer a different mix of tools and focus though, so you might try these in a pinch too: Photoshop Express, Picnik (has API for external embedding), Fotoflexer, and Aviary Phoenix.
Update: In July 2009 ReadWriteWeb noted Free Alternatives to Photoshop With All the Bells, Whistles, Filters, & Layers. They didn't mention Gimp with GimpShop, but those haven't satisfied much anyway.