The reason for this is that a fair few people on my site link to specific images on flickr/private storage, and if/when the source image is removed there's a gaping great whole in the thread which makes no sense to anyone without pics. This way, it allows the pics to remain, and therefore keeps the flow of a thread running (and serves as a useful archive too!).
So effectively what it does (as above) is to parse any new threads via a cron task and any new links to images it downloads to a local directory, and then replaces the link that was present in the thread to link to the local image that it had downloaded, rather than the external content.
Simple, but effective.
Link to original mod is here : http://www.vbulletin.org/forum/showthread.php?t=253309
Anyone interested in coding this, prices, chipping in etc etc?? I'm a non-commercial profit-free site so not an unlimited budget, however i wouldn't mind paying out of my own pocket to get this coded and made available to the wider community