I used to work for Wal-Mart in the photo lab, though it's been almost 10 years since I left. I was there before digital cameras had really started catching on in the mainstream, and so there was no such thing as ordering prints online, or bringing in a CD or memory card to make prints from. Everything we did was from negatives with good ol' chemicals.
However, I was there when they brought in their big Kodak machines that allowed people to make copies of prints without needing the negatives, and copyright issues were a pain in the butt. Wal-Mart's policy even back then was that if it even looked remotely professional we were not allowed to copy it. I had more than a few arguments with customers - some who just didn't know and honestly didn't understand why, some who knew the rules and tried to fool us by cropping out the logo, and some who just wanted to throw a fit about it because, well, they're Wal-Mart shoppers.
The story you linked to is stupid though, because she paid for the prints and then they wouldn't give them to her... that's just messed up. We always intervened before any money changed hands - sometimes that was after customers had spent time on the machine, but most of the time we got to them before that. The digital age has introduced a few more problems, but a situation where someone pays for photos, and then can't get the photos or a refund is just lame.