yes I would report it.
quote from istock
"If you require a foundation to plot your points in Illustrator, ensure you are the original creator of the artwork/photograph/sketch/render/scan that you base your work on. Any illustration found to be based on work from outside sources (i.e. found art, images found on the Internet, other artists’ work, magazines, clip art, etc) can result in a suspension of upload privileges."
http://www.istockphoto.com/illustrator_5.3_traces.phpand more info from istock
http://www.istockphoto.com/illustrator_8.1_derivative.phpI don't think it is 'illegal' (perhaps yingyang has something to say here) but I know it is not an accepted practise for the micros. I would let dreamstime, and stockxeprt (and other sites) know... as well as the artist himself.