That's right, except insofar as they enter into some kind of contractual relationship (eg 'we will host your stuff reliably in accordance with our T&C, in return you allow us to stick adverts on it from time to time.')
Tumblr doesn't put ads on the persons blog, just the dashboard - which is the primary way users consume content on the site. The users tumblelog is theirs to do with what they want (within legal limits, and certain TOS limits...) including putting their own ads on them.
It's just an example of what sort of agreement could exist between a service provider and user. I chose the example of ads because a) Yahoo now owns Tumblr, and Yahoo's major source of revenue is ads, so that could happen in future; and b) in contract law, you typically have no rights to a free service but if you there is some exchange such as their putting ads on your log then a commercial exchange wouldbe taking place.
Right - I am just stating as a current Tumblr employee how it currently is - obviously the future is hypothetical and not something I will personally speculate on with regards to my employer - but I understand the point.
