It is now confirmed that Microsoft would suspend your SkyDrive account if they find content stored on it that goes against the terms and conditions.
This is applicable even on content that is stored in private folders not open to web users.
At least two cases have been reported in the recent times. There are likely more.
We are yet to see similar reports about other cloud storage services like Dropbox and Google Drive.
I personally have faced a similar issue with Flickr when they removed one of my private videos that had copyrighted content.
Uploading a photo of Michelangelo’s David from your Windows Phone to SkyDrive is a terms of use violation.
— Peter Bright (@DrPizza) July 23, 2012
@NorrathReaver “Microsoft reserves the right, at its sole discretion [...] to [...] delete content and accounts.”
— Peter Bright (@DrPizza) July 23, 2012
@NorrathReaver “You will not upload [...] any content [...] that: depicts nudity of any sort including full or partial human nudity” (1/2)
— Peter Bright (@DrPizza) July 23, 2012
@NorrathReaver “You will not upload [...] content [...] that: provides [...] links to external sites that violate this Code of Conduct.” 2/2
— Peter Bright (@DrPizza) July 23, 2012
@NorrathReaver “You will not upload [...] any content (including text [...]) [...] that: [...] expresses pornography”
— Peter Bright (@DrPizza) July 23, 2012
@NorrathReaver Wikipedia violates the Code of Conduct, since it stores nudity. Linking to sites that do so is against the Code of Conduct.
— Peter Bright (@DrPizza) July 23, 2012