Valleywag is reporting that MySpace (NWS) has purchased Photobucket, the photo and video hosting service that has long been the giant social network’s leading 3rd party infrastructure provider.

While joined at the hip, the two companies have squabbled publicly more than once as News Corp.’s MySpace has attempted to diminish its reliance on Photobucket’s massive photo and video hosting traffic. According to Marketingvox, “Photobucket currently serves 3 billion online images for 41 million members, and accounts for 40 percent of all photo-sharing content.”

And how much of that traffic does Photobucket owe to Myspace? Roughly 59% says Hitwise, at least in the week ending May 5th, (and if you combine MySpace.com and MySpace Mail.)

Valleywag does not provide financial details of the deal, but notes that banker Lehman Brothers had last year sought a $300 million valuation for Photobucket, hoping a bidding war would break out for the service. Instead, the gossip blog suggests that News Corp. (NWS) always had the inside track, and “the jostling between the two companies — MySpace’s bullying, and Photobucket’s public protest — were always part of the negotiations.”

UPDATE: While there has still been no official announcement of the deal from either company, Michael Arrington at TechCrunch says that he has confirmed the deal rumor with a senior person at one of the companies, and writes: “MySpace is acquiring Photobucket for $250 million in cash. We’re hearing that there is also an earn-out for up to an additional $50 million.”