As you’ve probably heard by now, popular file-sharing and storage site Megaupload was taken down on Jan. 19, 2012, following a shutdown order by the U.S. Department of Justice and FBI and the arrest of the company’s executive team in New Zealand. Any customer with data stored at Megaupload, legitimate or not, is now unable to get at it. So now that the dust has settled a little bit, it’s time to take a closer look at the uncomfortable questions Megaupload’s shuttering raises for the cloud storage market.

First, here’s the background: Megaupload was shut down for its alleged part in promoting media and software piracy worldwide. “Founder Kim Dotcom and three others appeared in court Friday (Jan. 20) and were denied bail,” wrote PCWorld Magazine. Police seized the Megaupload team’s assets, including 20 luxury cars with personalized license plates including GOD and HACKER. Okay, yes, it sounds like something out of a movie (specifically, the 1995 Angelina Jolie movie “Hackers“.)

But this raises a disturbing precedent: If you’re a cloud storage provider, and one of your customers stores an illegal MP3 on your site completely without your knowledge, are you liable? Where’s the line drawn? Is there a line? I don’t mean to scare anyone, and I doubt black-uniformed stormtroopers are going to be forcing a shutdown of Dropbox anytime soon, but this is something you need to be aware of. And maybe having a contingency plan isn’t the worst idea.

It’s almost funny: We keep coming back to these same issues over and over again. Megaupload is an extreme example, but this calls to mind the curious case of Wikileaks. In late 2010, Amazon Web Services actually ejected Wikileaks from its hosting under pressure from the U.S. government. At what point are service providers responsible for the content hosted with them? And what steps constitute due diligence to keep pirated material from getting hosted?

I’ve asked a lot of questions here. Keep watching TalkinCloud for potential answers.