No, this is what he says:
it was fun replacing the unflattering images of Nancy Pelosi and John Kerry they were hotlinking with tubgirl and goatse
It seems that some FReepers were posting pictures of Kerry and Pelosi that were hosted on his website and he swapped the images on his own server because he didn't appreciate the bandwidth drain.
It's naughty but legitimate. I've done it myself (I replaced this image 
with this one 
)
DArks says when it showed up in the Canteen, it had the racist stuff along with it.
"It seems that some FReepers were posting pictures of Kerry and Pelosi that were hosted on his website and he swapped the images on his own server because he didn't appreciate the bandwidth drain."
Hotlinking is never a wise thing to do. For one thing it is bandwidth theft and if it was done to me, I'd be screaming because I would be charged extra bucks over and above my allowed bandwidth. The other reason is because of the ability to swap images and mess with the person who's linking to them.
Case in point - a friend and I had our own websites and forums back in 2000. Some mutual friends got into a squabble with the VegSource leftwing activists and asked for my friend's help. He went to their forum and blasted the VegSource people. They retaliated by posting a copyrighted image which they'd grabbed from my friend's website. He switched images and altho it wasn't porn, it was very close. They complained to Tripod, which hosted his website and Tripod took his site down. We wrote a lot of letters explaining what happened and they did restore his site, but we went through a real hassle because of this.
So a word to the wise - Don't hotlink!