I recently bought a random cheap Canon PIXMA inkjet, and with proper photo paper, the photos it prints are indistinguishable from what you'd get from a regular photo printing service. No smudging, no bleeding, nada. It also uses big refillable ink tanks that are way cheaper and longer-lasting than overpriced HP-style disposable cartridges.
Now I'll admit that from a strict dollars-and-cents perspective, it's probably still more expensive per picture than using a photo service, but it's way more convenient. And it does a fine job with B&W printing too.
I had a Canon PIXMA around 5 years ago (I forget the exact model number), and it wasn't great. It could print decent photos, though I'd say ones from a professional print shop were still obviously superior. But it had all the usual inkjet problems - eating copious amounts of ink and needing constant maintenance.
Now I'll admit that from a strict dollars-and-cents perspective, it's probably still more expensive per picture than using a photo service, but it's way more convenient. And it does a fine job with B&W printing too.