Lol happens uses feathered images
so you can upload a pic , use as feathered image
you can use this plugin http://wordpress.org/extend/plugins/wp-user-frontend/
to achieve that
make a page called submit or something put the short code the plugin gaves you
enable uploading feathered images and thats it
or you can go with hard coding
use this tut to make that http://voodoopress.com/how-to-post-from-your-front-end-with-no-plugin/
good luck
