It's the typical slime-ball stuff Facebook has been doing for ages. The seem to push out things completely over the top and then retreat to something that would have been seen as egregious before but in the context of what they threw out it doesn't seem quite so bad.
Maybe someone can come up with an Instagram watermark app and a jpeg compression app. I upload TONS of photos to FB but everything potentially worth anything has a nice big watermark on it and tends to be compressed from up to 20 megs down to 150K at most. What gets uploaded might be good enough quality to use in a banner ad if they erase the watermark but not in any kind of print or high quality advertisement.