Why did InstaWallet shut down, and what does this mean for Bitcoin? Title is pretty self-explanatory. Just went to InstaWallet's site and it is clearly shut down, probably for good...
Apparently someone got access to their database (another link)

The Instawallet service is suspended indefinitely until we are able to
develop an alternative architecture.
Our database was fraudulently
accessed1, due to the very nature of Instawallet it is impossible to
reopen the service as-is.
In the next few days we are going to open
the claim process for Instawallet balance holders to claim the funds
they had stored before the service interruption.

This probably means that one should be more careful when using online Bitcoin services. Most of these do not hire security consultants (or don't hire enough), as Bitcoin is still a fledgling market and they probably don't have enough resources to ensure foolproof security. I would probably trust Mt. Gox's security (not completely, just to a reasonable degree) as it is a rather big company, but smaller ones like Instawallet are always in danger of being hacked.
If you own a bitcoin service, hire a security consultant. The nature of Bitcoin makes it hard to pursue a hacker via the legal system, so if something is compromised, there's not much going back. So don't let it be compromised in the first place.
1. Sounds suspiciously like SQL injection