I am not (your) lawyer, and I haven't closely analyzed the whole document, but I think Instagram might have a problem if they tried to use photos a user takes of someone else in an ad.
Say I take a picture of +Wil Wheaton
. If I post that picture to Instagram, paragraph 4 of the "Rights" section of the ToU doc says that I (1) own the content (which I do, because I took the picture), and (2) my posting doesn't violate any publicity rights (which it doesn't, because I'm not using it for a commercial purpose). I don't owe any royalties because I created the picture myself. So I've lived up to this paragraph of the "Rights" section of the ToU.
Paragraph 2 of the "Rights" section says that I agree that they can use my picture without any payment to me. That's fine with me, too.
However, Instagram using the picture in an ad would implicate Wil's rights of publicity. Nothing in the ToU says that I agree that I have the rights to use the image for a commercial purpose, and I'm not the one using it for a commercial purpose, so I don't think the indemnification clause would apply, either.
So, I think that, unless Instagram gets a model release from Wil, they're not going to be able to use my picture of him in an ad without opening themselves up to liability under Wil's rights of publicity.