That did sound pretty bad. But I think top VCs are more careful now, because word of any misdeeds spreads so much faster. E.g. I could not imagine a Greylock partner today pulling the kind of trick Philip Greenspun describes them pulling on Ars Digita.
I just read the WSJ story on this, and the venture firms typical investments differed from the Photobucket investment. Photobucket was much smaller than their usual portfolio companies and needed much less money than the venture firm usually gave. I think that's a pretty solid excuse, though it looks bad on the face of it because the return was so good.
And this screwed the founders, how? This article is w.r.t. VC partners robbing their Limited Partners of the investment opportunity. And even at that, as many others have pointed out, it's somewhat deliberately slanderous.
AFAIK the founders were ok, but the folks that put in money into this VC's fund probably got screwed. So, how can you really trust these guys? I am sure buxfer wouldn't raise money from these guys whatever the terms.