John Cook managed to snag the original email that started Picnik and there was one quote about what technology they were going to use that struck a chord:

Our timing is right. We’re at the intersection of demand (mass use of online photos) and capability (Flash 8 supports the first level of functionality we need). Flash 8.5/9 will take us to the next level. If Canvas becomes widespread and is hardware accelerated we can move to that. If WPF becomes widespread we can move to that and boost our functionality/performance even further.

Part of it is the initial investment, but one of the things I think is telling is that the Picnik guys never switched away from Flash. They had the basic start in Flash Player 8, built it on (I believe) Flash Player 9 which gave them the performance improvements they wanted, and they even moved to Flash Player 10 pretty quickly to get better file upload support as well as make heavy use of Pixel Bender.

Flash may be a lot of things, but it moves forward and tries to provide functionality its customers want. Picnik is a great real-world example of that at work.